CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
Which forecasting method is most likely to capture the effect of a competitor's new product launch on a company's future market share?
A top-down approach is most likely to capture the launch, because the analyst forecasts industry growth and then adjusts the company's market share for the competitor's new product. Simple extrapolation ignores new events, and holding margin constant does not address market share.
- ASimple extrapolation of the past five years of revenue
- BTop-down analysis combining industry growth with a market share assumption revised for competitive changesCorrect
- CApplying the prior year's gross margin to all future periods
Explanation
A top-down approach lets the analyst explicitly adjust market share for competitive developments. Pure extrapolation ignores the new product, and a constant margin addresses profitability rather than share.
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