CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst forecasts next year's revenue of 1,200 million and COGS of 780 million. The company's inventory days are expected to be 60 days, using a 365-day year and COGS as the base. Forecast ending inventory is closest to:
Forecast ending inventory is about 128 million. Inventory days apply to COGS, so 780 million multiplied by 60 and divided by 365 gives roughly 128 million. Using revenue as the base would overstate inventory at about 197 million.
- A117 million
- B128 millionCorrect
- C197 million
Explanation
Inventory = COGS × days/365 = 780 × 60/365 = 128.2 million. Using revenue instead of COGS gives 1,200 × 60/365 = 197.3 million, which is the wrong base. The 117 figure comes from using 54 days, so it is not supported.
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