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

When analyzing a company's past financial performance, an analyst most likely begins by:

An analyst most likely begins by identifying the drivers of revenue and margins. Understanding why sales and profitability changed, through volume, price, mix and cost structure, gives the basis for forecasts. Mechanical extrapolation or discounting dividends are later steps that depend on this historical understanding.

  1. Aidentifying the drivers of revenue and marginsCorrect
  2. Bextrapolating last year's growth rate indefinitely
  3. Cdiscounting projected dividends at the cost of equity

Explanation

Analysis of past performance starts with understanding what drove revenue growth and profitability, such as volume, price, mix and costs. Extrapolating growth and discounting dividends belong to forecasting and valuation, which come after the historical drivers are understood.

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