CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation
An analyst projects that a manufacturer's industry will grow 4% next year, with the company's market share rising from 20% to 21%. Industry sales this year are $500 million. The company's expected revenue growth rate is closest to:
Expected growth is about 9.2%. Current revenue is 20% of $500 million, or $100 million; next year it is 21% of $520 million, or $109.2 million. Both industry growth and the share gain lift revenue, so growth exceeds the industry's 4%.
- A4.0%
- B9.2%Correct
- C9.2% below the industry
Explanation
Current revenue = 0.20 × 500 = $100.0 million. Next year industry sales = 520; company revenue = 0.21 × 520 = $109.2 million. Growth = 109.2/100 − 1 = 9.2%. The 4% option ignores the share gain.
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