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CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation

Which of the following is most likely an advantage of a bottom-up revenue forecast for a retailer with many stores?

The advantage is that it captures store-level drivers such as new openings and same-store sales. A bottom-up forecast builds revenue from the company's own operating detail. It does not remove macro considerations or guarantee consistency with industry totals without a separate cross-check.

  1. AIt captures store-level drivers such as new openings and same-store salesCorrect
  2. BIt removes the need to consider macroeconomic conditions
  3. CIt guarantees that the forecast equals industry sales in total

Explanation

Bottom-up forecasts build revenue from company-level drivers such as store count and same-store sales growth, giving detailed visibility. They do not remove macro considerations, and the sum of company forecasts need not reconcile with industry totals unless a cross-check is made.

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