CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst begins building a financial statement model for a retailer. Which step most likely comes first in the modeling process?
The analyst should first identify the purpose of the model and the company's key business drivers. The purpose sets the scope, time horizon and level of detail, so forecasting revenue or choosing a discount rate only make sense after that foundation is established.
- AForecasting revenue growth
- BChoosing a discount rate
- CIdentifying the purpose of the model and the company's business driversCorrect
Explanation
A model is built to serve a defined purpose, and the purpose determines scope, detail and the drivers to include. Forecasting revenue and selecting a discount rate are later steps that depend on that purpose and on an understanding of the business.
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