CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation
Industry sales are forecast at 8,000 million for next year. A firm holds 12.5% market share this year and expects to gain 1.5 percentage points next year. The firm's forecast revenue next year is closest to:
Next year's share is 12.5% plus 1.5 percentage points, which is 14.0%. Applied to industry sales of 8,000 million, forecast revenue is 1,120 million. The 1,000 million figure ignores the share gain.
- A1,000 million
- B1,120 millionCorrect
- C1,240 million
Explanation
New share = 12.5% + 1.5% = 14.0%. Revenue = 8,000 × 0.14 = 1,120 million. Check: 8,000 × 0.125 = 1,000 plus 8,000 × 0.015 = 120 gives 1,120. The 1,000 option ignores the share gain, and 1,240 applies a 15.5% share, which wrongly treats the gain as 3 points.
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