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CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future

When an analyst assesses a company's past financial performance, which of the following is the most appropriate first step in judging the quality of its revenue growth?

The most appropriate first step is to compare the company's revenue growth with that of industry peers. This shows whether growth reflects market share gains or merely a rising market. Payout ratios and tax rates do not address the quality or source of revenue growth.

  1. AComparing revenue growth with the growth of its industry peersCorrect
  2. BComputing the company's dividend payout ratio
  3. CCalculating the effective tax rate over five years

Explanation

Revenue growth is only meaningful relative to the market in which the company operates. Comparing it with peers shows whether the company is gaining or losing share. Payout and tax rates describe other aspects of performance and do not assess revenue quality.

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