CFA Level I · CFA Level I Exam · Introduction to Equity Valuation
When forecasting a company's revenue using a top-down approach, an analyst would most likely begin by:
A top-down revenue forecast begins with the overall economy or industry, for example GDP growth or industry sales, and then estimates the company's market share. Building up from individual stores is a bottom-up approach, and margin extrapolation is not a revenue starting point.
- Aprojecting growth in the overall economy or industryCorrect
- Bestimating sales for each individual store
- Cextrapolating the firm's historical profit margin
Explanation
A top-down approach starts with macroeconomic or industry-level forecasts, such as GDP or industry sales, and then derives the company's share. Estimating sales store by store is a bottom-up approach. Extrapolating margins concerns profitability, not the starting point for revenue.
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