CFA Level I · CFA Level I Exam · Financial Analysis Techniques
An analyst compares a company's operating margin with the median of its industry peers and with its own results over the past five years. The analyst is most likely using:
The analyst is using both cross-sectional and trend analysis. Comparing the margin with industry peers is cross-sectional analysis, while comparing the company's own margin across five years is trend analysis. Neither activity is only vertical common-size analysis or a regression forecast.
- Aonly vertical common-size analysis
- Bboth cross-sectional and trend analysisCorrect
- Conly a regression-based forecast
Explanation
Comparing with peers at one point in time is cross-sectional (comparative) analysis. Comparing the company's own results across years is trend analysis. Doing both means the analyst uses both techniques; vertical common-size analysis or regression is not described.
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