- CFA Exams
- 2024 Level I
- Topic 6. Equity Investments
- Learning Module 7. Company Analysis: Forecasting
- Subject 2. Forecasting Revenues
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Subject 2. Forecasting Revenues PDF Download
Similarly, we discuss the selection of forecast objects and approach for revenue forecast. Using different objects and approaches to project revenue can be useful in uncovering implicit assumptions or errors in any single approach.
Forecast Objects for revenues
The top-down forecast objects include:
- Growth relative to GDP growth.
- Market growth and market share.
The bottomw-up revenue drivers include:
- Volumes and average selling prices.
- Product-line or segment revenues.
- Capacity-based measures.
- Return- or yield-based measures.
The non-recurring items and effects should be excluded from a forecast object and considered separately. Some non-recurring items are not disclosed by management and require analysts to estimate.
Forecast Approaches for Revenues
Any of the four forecast approaches discussed in the previous topic can be used to forecast revenue. Analysts should incorporate their own view and judgement on key risk factors. Four risk factors to consider are competition, changes in the business cycle, inflation and deflation, and technological developments.
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