CFA Level I · CFA Level I Exam · Equity Analyst Research Reports
Which approach to risk analysis in a research report is most appropriate for communicating uncertainty around a company's forecasts?
Presenting scenario analysis with optimistic, base and pessimistic cases is most appropriate. It shows how valuation changes if key drivers differ from expectations, giving readers a balanced view of uncertainty, unlike a single-case forecast or omitting the risk section for buy ratings.
- APresenting scenario analysis showing valuation under optimistic, base and pessimistic assumptionsCorrect
- BReporting only the base-case forecast to avoid confusing readers
- CRemoving the risk section when the rating is a buy
Explanation
Scenario analysis shows how value changes when key drivers differ from the base case, giving readers a range of outcomes. Omitting risks or reporting only a single case fails to communicate uncertainty and is inconsistent with fair, balanced presentation.
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