Company Analysis: Forecasting practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Equity Investments

Company Analysis: Forecasting

A consumer-products company reports current revenue of USD500 million. An analyst forecasts unit volume growth of 6.0% and average selling-price growth of 3.0%. Assuming no change in product mix, forecast revenue using exact multiplicative decomposition is closest to:

Equity Investments

Company Analysis: Forecasting

A top-down revenue forecast most likely begins with:

Equity Investments

Company Analysis: Forecasting

Scenario analysis in forecasting is best described as:

Equity Investments

Company Analysis: Forecasting

A firm's industry volume is 10 million units. The industry is expected to grow 4%, the firm's market share is expected to rise from 8.0% to 8.5%, and average price is expected to rise from 50 to 51.50. Forecast revenue is closest to:

Equity Investments

Company Analysis: Forecasting

A company has sales of 200, variable costs equal to 60% of sales, and fixed operating costs of 50. If sales rise 10%, the expected percentage increase in operating income is closest to:

Equity Investments

Company Analysis: Forecasting

Sales are forecast to rise from 100 to 120. Net working capital is targeted at 15% of sales, and current net working capital is 15. Planned capital expenditures are 12. The forecast investment in net working capital plus capital expenditures is closest to:

Equity Investments

Company Analysis: Forecasting

A company's real unit growth is forecast at 3.0% and price inflation at 4.0%. Using exact compounding, nominal revenue growth is closest to:

Equity Investments

Company Analysis: Forecasting

An analyst forecasts total industry demand using a macroeconomic model and then separately projects a company's market share and selling prices from its announced capacity additions and existing customer contracts. The analyst's revenue forecasting approach is best described as:

Equity Investments

Company Analysis: Forecasting

An analyst forecasts that a company's operating margin will move gradually from its current 18% toward the 12% industry average over five years, reasoning that competition typically erodes above-average profitability over time. This forecasting approach is best described as using:

Equity Investments

Company Analysis: Forecasting

After completing a base-case earnings model, an analyst re-estimates forecast earnings per share after changing only the gross margin assumption by one percentage point, holding every other input unchanged. This exercise is best described as:

Equity Investments

Company Analysis: Forecasting

In building a multi-year financial forecast, which expense is most appropriately projected as a constant percentage of revenue?

Equity Investments

Company Analysis: Forecasting

A beverage company reports current-year revenue of USD 800 million. For next year, the analyst forecasts unit volume growth of 12% and average selling price growth of 7%. Next year's forecast revenue is closest to:

Equity Investments

Company Analysis: Forecasting

A company currently has sales of USD 500 million. Variable operating costs equal 60% of sales, and fixed operating costs are USD 120 million per year. The analyst forecasts sales to grow 10% next year with an unchanged cost structure. Next year's forecast operating income is closest to:

Equity Investments

Company Analysis: Forecasting

An analyst forecasts next year's revenue at USD 730 million and cost of goods sold at USD 547.5 million. The company is expected to maintain days sales outstanding of 40 days and days inventory on hand of 60 days. Using a 365-day year, the forecast combined balance of accounts receivable and inventory is closest to:

Equity Investments

Company Analysis: Forecasting

An analyst forecasts a company's capital expenditures in two parts. Maintenance capital expenditure is estimated as current-year depreciation of USD 50 million adjusted upward for 4% equipment cost inflation. Growth capital expenditure is estimated as 15% of the forecast increase in revenue. Revenue is forecast to rise from USD 1,000 million to USD 1,140 million. Total forecast capital expenditure is closest to:

Equity Investments

Company Analysis: Forecasting

A company reports current revenue of USD 1,200 million. For next year, an analyst forecasts unit volume growth of 5% and price growth of 3%. Cost of goods sold is forecast at 55% of revenue, variable selling costs at 10% of revenue, and fixed administrative costs at USD 300 million. Next year's forecast operating profit is closest to: