Tiêu đề LM12 Introduction to Financial Statement Modeling IFT Notes.pdf ✅

LM12 Introduction to Financial Statement Modeling 2025 Level I Notes © IFT. All rights reserved 3 nominal GDP growth rate. The forecast may also be in relative terms. For example, if we forecast that the GDP will grow at 4%, and we believe that the company’s revenue will grow at a 20% faster rate, then the forecasted increase in the company’s revenue is 4% x (1 + 0.20) = 4.8%. Market growth and market share: In this approach, we combine forecasts of growth in particular markets with forecasts of a company’s market share. For example, assume Tesla is expected to maintain a market share of 1% in the automobile market. If the automobile market is expected to grow to $30 billion in annual revenue, then Tesla’s annual revenue is forecasted to grow to 1% * $30 billion = $300 million. Bottom-Up Approaches to Modeling Revenue Examples of bottom-up approaches include:  Time-series: Forecasts based on historical growth rates or time-series analysis. For example, we may assume that the historical growth rate will continue, or that the growth rate will decline linearly from current rates to some long-run rate.  Return on capital: Forecasts based on balance sheet accounts. For example, a bank’s interest revenue can be calculated as loans multiplied by the average interest rate.  Capacity-based measure: For example, a retailer’s revenue may be forecasted based on same-store sales growth and sales related to new stores. Hybrid Approaches to Modeling Revenue Hybrid approaches are the most commonly used approaches in practice. They combine elements of both top-down and bottom-up approaches. For example, we may use a market growth and market share approach to model individual product lines or business segments (top-down), and then combine the individual projections to arrive at a forecast for the overall company (bottom-up). Income Statement Modeling: Operating Costs Operating costs include cost of goods sold (COGS) and selling, general, and administrative expenses (SG&A). Disclosures about operating costs are often less detailed than revenue. If information is available, then we can match cost analysis to revenue analysis. For example, costs may be modeled separately for different geographic regions, business segments or product lines. Similar to revenue forecasting, costs can also be forecasted using a top-down, bottom-up, or hybrid approach:  Top-down approach: Consider factors such as overall level of inflation, or industry- specific costs.  Bottom-up approach: Consider factors such as segment-level margins, historical cost-
LM12 Introduction to Financial Statement Modeling 2025 Level I Notes © IFT. All rights reserved 4 growth rates, historical margin levels, etc.  Hybrid view: Incorporate elements from both top-down and bottom-up approaches. Some points that analysts must consider when projecting operating costs are:  Since variable costs are linked to revenue growth, they can be forecasted as a percentage of revenue.  Since fixed costs are not directly related to revenue, they are assumed to grow at their own rate or at the rate of future PP&E growth.  Determine whether a company has economies of scale at the current level of output. Economies of scale means the average costs per unit of a good produced falls as volume increases. Gross and operating margins tend to be positively related to sales, if there are economies of scale.  Be aware of the uncertainty related to cost estimates such as reserve accounts, competitive factors and technological developments. For example, banks and insurance companies create reserves against estimated future losses. However, the actual losses may not be known for many years. Cost of Goods Sold Since COGS are directly related to sales, we can forecast future COGS as a percentage of future sales. Analysts should understand the historical relationship between COGS and sales, and determine if this relationship is likely to decrease, increase, or remain unchanged. Sales – COGS = gross margin. Therefore, COGS and gross margin are inversely related. Some factors that analysts should consider while forecasting COGS are:  Forecasting accuracy can be improved by forecasting COGS for the company’s various segments or product categories separately.  Determine if a company has employed hedging strategies to protect its gross margins. When input prices increase, COGS increase and gross margin decreases. However, hedging strategies can help mitigate this impact.  Examine gross profit margins of competitors. This can be a useful cross check for estimating a realistic gross margin. Any difference in gross margins for companies in the same segment must relate to differences in their business operations. SG&A Expenses As compared to COGS, SG&A expenses are less directly related to revenue. SG&A can be broken down into two components – fixed and variable. The fixed components such as R&D expenses, management salaries, head office expenses, supporting IT and administrative operations tend to increase and decrease gradually over time. They do not