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CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation

An analyst begins a forecast of a manufacturer's revenue by projecting global GDP growth, then estimating the industry's share of GDP, and finally estimating the company's market share. This approach is best described as:

This is a top-down forecast. It starts at the macroeconomic level with GDP growth, narrows to the industry's share, and ends with the company's market share. A bottom-up approach would begin with company-level drivers such as units sold, prices or individual segments.

  1. Aa bottom-up forecast
  2. Ba top-down forecastCorrect
  3. Ca scenario-based forecast

Explanation

A top-down forecast starts with macroeconomic variables such as GDP, moves to the industry, and then to the company's share. A bottom-up forecast would instead build from the company's own units, prices or segments. A scenario-based forecast is about the number of outcomes modelled, not the starting point.

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