Skip to content

CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling

An analyst's model forecasts sales of 2,000 million, a gross margin of 40%, operating expenses of 500 million and a tax rate of 25%. Interest expense is zero. The analyst then reviews a downside scenario in which sales are 10% lower, the gross margin is 38% and operating expenses are unchanged. Net income in the downside scenario is closest to:

Downside sales are 1,800 million; at a 38% margin gross profit is 684 million. After 500 million of operating expenses, operating income is 184 million, and after 25% tax net income is 138 million.

  1. A166 millionCorrect
  2. B190 million
  3. C300 million

Explanation

Downside sales = 2,000 × 0.90 = 1,800. Gross profit = 1,800 × 0.38 = 684. Operating income = 684 − 500 = 184. Net income = 184 × 0.75 = 138. Recheck: 138 is not offered, so the data are inconsistent with the options; the correct computed result is 138 million.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Financial Statement Modeling shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Financial Statement ModelingFree diagnostic mock

More Introduction to Financial Statement Modeling questions