- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 29. Market-Based Valuation: Price and Enterprise Value Multiples
- Subject 11. Momentum indicators
CFA Practice Question
As of the end of December, 2011, quarterly consensus earnings forecast for a company was $1.25. For the 24 analysts covering the stock, the low forecast is $1.20 and the high is $1.45. The standard deviation of the forecasts is $0.05. If reported earnings come in $0.08 above the mean forecast, what is the earnings surprise for the firm, scaled to reflect the dispersion in analysts' forecasts?
A. 1.6
B. 5
C. 1.064
Explanation: $0.08/$0.05 = 1.6
User Contributed Comments 3
| User | Comment |
|---|---|
| SMcalister | What is the 1.6 in reference to? How is it measured and does it have units? |
| sheridanla | It has no unit. It tells how many standard deviations the reported earnings are from the forecast earnings. |
| daverco | The formula in the text multiplies the standard deviation in the denominator by the earnings beat. This would make the result 20. Is there a reason not to do this, or is the explanation wrong? |