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

When forecasting a company's future results, an analyst who first reviews the firm's historical growth, margins and returns on capital is most likely trying to:

The analyst is most likely establishing a baseline for judging how sustainable current performance is. Historical growth, margins and returns help explain the present and inform forecasts, but they do not replace industry analysis or guarantee that past growth continues unchanged.

  1. Areplace the need for industry analysis
  2. Bestablish a baseline for judging how sustainable current performance isCorrect
  3. Cprove that past growth rates will continue unchanged

Explanation

Past performance gives a baseline for understanding current results and for judging which trends are sustainable. It complements industry analysis rather than replacing it, and forecasts should adjust for changing conditions instead of extrapolating unchanged.

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