Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.

Subject 5. Model Building and Forecasting
#cfa #cfa-level-1 #financial-analysis-techniques #financial-reporting-and-analysis
The results of financial analysis provide valuable inputs into forecasts of future earnings and cash flow. An analyst can build a model to forecast future performance of a company. Techniques that can be used include:

  • Sensitivity Analysis. This is the study of how the variation in the output of a model can be apportioned to different sources of variation. (e.g., what will be the net income if more debt is issued?)

  • Scenario Analysis. This considers both the sensitivity of financial outcome to changes in key financial variables and the likely range of variable values. The least "reasonable" set of circumstances (low unit sales, high construction costs, etc.) and the most "reasonable" set are specified first. The financial outcomes under the bad and good conditions are then calculated and compared to the expected, or base-case, outcome. Even though there are an infinite number of possibilities, scenario analysis only considers a few discrete outcomes.

  • Monte Carlo Simulation. This is a risk analysis technique in which a computer is used to simulate probable future events and thus estimate the profitability and risk of a project. Random values of input variables are generated on a computer. The mean of the target variable is computed to measure the expected value. Standard deviation (or coefficient of variation) is computed to measure risks.
If you want to change selection, open original toplevel document below and click on "Move attachment"


statusnot read reprioritisations
last reprioritisation on suggested re-reading day
started reading on finished reading on



Do you want to join discussion? Click here to log in or create user.