CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst begins a revenue forecast for a retailer by projecting nominal GDP growth, then estimating the retail industry's share of GDP, then the company's market share of that industry. This approach is best described as:
This is a top-down approach, because the forecast starts from macroeconomic growth, then narrows to industry size and finally to the company's market share. A bottom-up approach would instead build revenue from company-level drivers such as stores, units and prices.
- Aa bottom-up approach.
- Ba top-down approach.Correct
- Ca hybrid approach.
Explanation
A top-down approach starts with a macro variable such as GDP, moves to industry size and then to the company's market share. A bottom-up approach would start from company-level units such as stores, volumes and prices. A hybrid approach mixes both.
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