CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst forecasts a retailer's revenue by first projecting nominal GDP growth, then estimating the retail sector's share of GDP, and finally applying the company's expected market share to the sector total. This approach is best described as:
This is a top-down approach. The analyst begins with economy-wide GDP growth, narrows to the retail industry's share, and then applies the company's market share. A bottom-up approach would start from company-level drivers such as store counts and sales per store.
- Aa bottom-up approach
- Ba top-down approachCorrect
- Ca hybrid approach
Explanation
The forecast starts with a macro variable (GDP), moves to the industry, and ends with the company's share. Moving from the aggregate economy down to the firm defines a top-down approach. A bottom-up approach would instead build from individual units such as stores or products.
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