CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
An analyst is forecasting revenue for a retailer with a stable store base. Which approach to forecasting revenue growth is most appropriate for a mature company in a stable industry?
The most appropriate approach is extrapolating historical growth with modest adjustments. A mature company in a stable industry has predictable growth patterns, so past performance is a reliable base, while the other options rely on unsupported assumptions about competitors or arbitrary growth.
- AExtrapolating the company's historical growth rate with modest adjustmentsCorrect
- BAssuming growth equals that of the fastest-growing competitor
- CAssuming revenue doubles over the forecast period
Explanation
For mature firms in stable industries, historical growth is a reasonable starting point, adjusted for known changes. Matching the fastest competitor or assuming doubling lacks support from the firm's own circumstances.
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