Bottom-up analysis starts with analysis of an

individual company or its reportable segments.

Top-down analysis begins with macroeconomic
variable, often the expected growth rate of
GDP.
1. Based on Exhibit 1, which of the following provides the strongest evidence that
Chrome displays economies of scale?
A. Increasing net sales.
B. Profit margins that are increasing with net sales
C. Gross profit margins that are increasing with net sales

2. Based on Exhibit 2, the job candidate most likely using a bottom-up approach to
model net sales is:
A. Candidate A. B. Candidate B. C. Candidate C.

3. Based on Exhibit 2, the modeling approach used by Candidate B to project future

net sales is most accurately classified as a:
A. hybrid approach. B. top-down approach. C. bottom-up approach.

4. Based on Exhibits 1 and 2, Candidate C's forecast for cost of sales in 2013 is
closest to:
A. $18.3 million. B. $18.9 million. C. $19.3 million.

5. Based on Exhibits 1 and 2, Candidate A's forecast for selling, general, and
administrative expenses in 2013 is closest to:
A. $23.8 million. B. $25.5 million. C. $27.4 million.

6. Based on Exhibit 2, forecasted interest expense will reflect changes in Chrome's

debt level under the forecast assumptions used by:
A. Candidate A. B. Candidate B. C. Candidate C.
Question 7 to 11
Use the following information to answer Questions 7 through 11
Jorge Stanza is a sell-side equity analyst who covers Entertaining Kids, Inc., (ENK), a
large retailer of children’s toys based in the United States. Stanza is reviewing the ENK
annual report that has just been released. At the moment, Stanza has a buy
recommendation on the company, but the impressive performance of some of ENK’s
competitors (đối thủ cạnh tranh làm ăn tốt) and a recent product recall (hàng bán bị trả
lại) have led him to revisit his recommendation in depth.
The product recall involved an inflatable swimming pool that ENK manufactures and
sells for children 4 years and over. Unfortunately, a number of ENK customers have
recently reported that an electrical problem in the pump caused injury to their
children (bể bơi gây thương tích cho trẻ con). After several such incidents in the industry
in the past months, it is expected that the government will step in to impose strict
regulation covering the manufacturing of all children’s toys in that category. Stanza
wants to build this possibility into his five forces competitive analysis model by adding
government involvement as a sixth force (cho government intervention thành yếu tố thứ
Exhibit 1: ENK Five Forces Analysis
Force Threat to Factors
Profitability
Substitutes Medium ENK sells a wide range of toys from sporting goods
to electronics. There has been a growing trend for
customers to prefer traditional hand-crafted toys
made and sold by independent retailers.
Rivalry low ENK has a 55% share of the market and enjoys
economies of scale that give it significant cost
advantages over competitors.
Bargaining power low Inputs into the vast majority of products are widely
of suppliers available (nhiều suppliers). Suppliers of game
consoles are also reliant on ENK to distribute their
product. -> suppliers có smanh yếu
-> Low (√)
Bargaining power low ENK sells directly to consumers who represent a
of buyers highly fragmented group. (buyers phân mảnh) -->
Low (√)
Threat of new high ENK has established a large distribution network
entrants (hệ thống phân phối lớn), and the large costs of
replicating such a network.
➔ High barrier to entry -> (x)
Another significant concern is the near-term threat of increased inflation. Stanza fears
that if ENK’s input costs rise due to a general rise in prices, ENK will not be able to pass
on the full increase in input costs to customers. Extreme weather events have already
had an adverse effect on food prices, leaving families with less discretionary income to
spend on children’s toys. Exhibit 2 shows ENK’s current gross margin and two possible
scenarios if inflation of 5% is realized next year.
Exhibit 2: Gross Margin
Entertaining Kids, Inc. 2019 ($ million)
Revenue 13201
Cost of goods sold 8755
Gross profit 4446
Gross margin 33,7%

Scenarios -> assumption Scenario 1 Scenario 2

Price increase for revenues = price growth (g price) 3% 5%
Volume growth (applied for both input and output) 2% 0%
g sale volume = g input volume
Input cost increase (g input cost) 5% 5%

Stanza is also concerned about a new game console that was released in the final
quarter of this year. Although ENK has an exclusive agreement with the maker of the new
console, the XTF 2500, Stanza is concerned that the sale of the new console will reduce
sales of other consoles that ENK currently sells. A significant segment of ENK’s revenue
is currently generated by sales of consoles to both individual customers and also to
assisted living facilities (ALFs) that use the consoles as part of their rehabilitation
program.

Exhibit 3: Current Year Sales Figures

2019 ($ million)
Existing console
Individuals 2640
ALFs 400
Total 3040
XTF 2500
Individuals 45
ALFs 0
Total 45

Exhibit 4: Forecasting Assumptions

1. Individual sales of the XTF 2500 will increase by 375% next year, but the new console
will not be adopted by ALFs.
2. Sales of existing consoles to ALFs will remain static.
3. Sales of existing consoles to individuals will shrink by 25% as a result of the XTF 2500.
The new console is being billed as a game changer, coming in at a price point not much
higher than existing consoles but with significantly more features. Stanza has analyzed
this year’s sales of existing and new console using the data shown in Exhibit 3 and
intends to forecast next year’s sales using the assumptions listed in Exhibit 4.
Question 7. Stanza’s intended treatment of government intervention in his competitive
analysis model is:
A. consistent with Porter’s five forces approach.
B. inconsistent with Porter’s five forces approach, as government involvement should
always be considered a reduction in the threat of new entrants.
C. inconsistent with Porter’s five forces approach, as Stanza should analyze how
government involvement affects all of the five forces.

Question 8. Stanza is most likely wrong regarding the threat to profitability resulting
from the:
A. bargaining power of customers, because a highly fragmented group (i.e., a large
number of low-volume customers) complicates pricing strategy, which implies a high
threat to profitability.
B. threat of new entrants, as the high costs of setting up a distribution network and
new stores means there is a low threat to profitability.
C. bargaining power of suppliers, as the reliance of console suppliers on ENK gives
ENK a high level of bargaining power.

Question 9. Which of the following statements regarding the inflation scenarios in

Exhibit 2 is most accurate?
A. Scenario 1 would lead to an increase in gross profit but a decrease in gross
margin.
B. Both scenarios would lead to an unchanged gross margin.
C. Only scenario 2 would leave gross profit unchanged.

Question 10. Using the information in Exhibit 3 and 4, total estimated revenue from
consoles next year should be closest to:
A. $2,494 million.
B. $2,548 million.
C. $2,594 million.

Question 11. Regarding the choice of forecast horizon for a discounted cash flow
model, which of the following statements is least accurate? The forecast horizon:
A. for a highly cyclical company should be long enough to allow the company to reach a
mid-cycle level of sales and profitability. (DT phụ thuộc vào chu kì kinh doanh) -> liên hệ
rule 4 “comprehensive.”
B. should be independent of the investment strategy for which the stock is being
considered. Lựa chọn n bằng bn không phụ thuộc vào chiến lược đầu tư
C. should be long enough to allow the full benefits from an acquisition to be reflected in
the financial statements. (n đủ lớn thì sẽ cover benefits của thương vụ mua bán) -> cover
biến động sale, profit.
Question 12: Which of the following statements is correct when considering the
purpose of financial statement forecasts?
a. Financial statement forecasts assess the earnings, cash flows, and assets of a firm
b. Financial statement forecasts provide information on Risk and Profitability of a firm
c. Financial statement forecasts are comprehensive projections of future
operating, investing, and financing activities of a firm.

Question 13: Two crucial features of financial statement forecasts are:

A. Optimistic and objective -> Overvaluation
B. Unbiased and objective
C. Pessimistic and subjective -> underestimation

Question 14: Choose the best answer when talking about how helpful a realistic
financial statement forecasts to investors:
a. A realistic financial statement forecasts produce expectations of future payoffs
to make well-informed investment decisions -> forecast expected cash flow.
b. A realistic financial statement forecasts inform investors about assets and liabilities
of a firm currently -> financial analysis.
c. A realistic financial statement forecasts provide information to make a conservative
investment -> not the objective of forecasting.

Question 15: Which of the following statements best describes the characteristics of a
realistic forecast?
a. A realistic financial forecast should be based on the wishful strategy, comprehensive,
and consistent with changes in macroeconomics -> avoid wishful thinking.
b. A realistic financial forecast should be based on the actual strategy, comprehensive,
and consistent internally -> thiếu externally validity.
c. A realistic financial forecast should be based on the actually executed strategy,
comprehensive, internally consistent, and externally valid.

Question 16: To predict revenue for a growing firm at an early phase in technology
industry, which of the following statement is most likely appropriate?
a. Based on the profit margin of the industry -> phải bình quân những dn công nghệ lớn
(Apple, Del) -> không phù hợp.
b. Based on the growth rate of sales of last three years and the indicators of the
industry.
c. Based on the current asset’s turnover -> vòng quay vốn ngành công nghệ chậm -> phải
lấy current asset tại thời điểm start – up -> hard to predict revenue.
Question 17: Big Bear Corporation has been the fast mover in the construction industry
in about 20 years. The main product line of Big Bear includes high-rise buildings, luxury
residences, and complex shopping malls. For the next five years, BOD of Big Bear
Corporation found the construction industry mature, so they wanted to enter into bridge
building market (xây dựng cầu đường). The average profit margin of the bridge building
industry is 15%; the assets turnover of bridge building industry is 0.8. The average assets
of firms in this industry are about USD 500 thousand. Big Bear Corporation plans to put
USD 1.5 billion into the new investment. Which of the following statements is most likely
proper when considering ROA of Big Bear Corporation?
A. ROA of Big Bear Corporation would be less than 12%.
B. ROA of Big Bear Corporation would be equal to the industry.
C. ROA of Big Bear Corporation would be higher than 12%.
ROA bridge building = Profit margin x Total asset turnover = 15% x 0.8 = 12%
Xem xét Big Bear Corporation enjoy bridge building market có lợi thế nào?
- Có lợi thế về vốn ($1.5b > $500,000) → Capital competitive advantage → bridge building
→ capital intense industry (ngành thông dụng về vốn)
- Economy of scale (tính kinh tế theo quy mô) → Big Bear has too large-scale economy
→ revenue cover fixed cost -> production cost per unit ↓ (chi phí sx trên 1 đơn vị SP)
- Tận dụng những lợi thế sẵn có từ ngành xây dựng
+ ecosystem of construction -> bridge building

Question 18: To predict revenues for a stable grocery retail store, what is the most
relevant indicator?
A. The ratio between cost of goods sold and revenues of prior years.
B. The current assets turnover of last year
C. The growth rate of population in places where the store is located.
Stable firm in maturity industry -> Supply > Demand
To predict revenue must depend on demand.

Question 19: A food producer with a recognized brand and reliable products on the
market can increase its revenue in the future because of which?
A. It can increase the price compared to competitors DN có brand loyalty (có
thương hiệu, được người dùng tin cậy) -> might apply differentiation strategy.
B. It can increase the market shares due to the cheap price (↓giá để tăng thị phần)
C. It can increase the volume due to the mass distribution (phân phối với phạm vi,
quy mô lớn)
↑ revenue = sale vol x price

Question 20: Which of the following statements is most likely relevant when talking
about the forecast of revenue for pharmaceutical firms?
A. Analysts should base their results on the revenue of peer firms to predict.
B. Analysts should base the disclosure information on R&D and prediction of
specialists in pharmaceutical industry.
C. Analysts should base it on the historical growth rate of revenue.
Question 21: Eco-world Corporation is the leading Vietnamese steel manufacturer.
BOD of this corporation is worrying about the changes in this industry due to the trade
war between China and America. The Chinese market accounts for 15% (phần trăm DT
từ thị trường TQ) and the American market is 65% of total revenues (phần trăm DT từ thị
trường Mỹ). Which of the statements is most likely relevant when talking about the
forecast of revenue for Eco-world next year?
A. Equal to this year
B. Increase by 15% -> insufficient base (không có cơ sở để forecast con số 15%) ->
revenue uncertainty (không chắc chắn về DT)
C. Decrease by 65% (Estimate tốc độ giảm DT xuống 65%) -> too conservative and
insufficient base.
China is the steel supplier -> trên thị trường Mỹ thì VN sẽ có lợi xuất khẩu thép (take
advantages of supplying steels)
The Chinese market has over domestic supply -> disadvantage

Question 22: For a startup firm in a growing industry, when the projected assets are
higher than the projected liabilities and shareholders’ equity, which is the best
alternative to balance the balance sheet?
A. Issuing more long-term debt -> startup firm không huy động đc nợ dễ dàng mà phải
qua vốn chủ/ quỹ đầu tư mạo hiểm
B. Reducing cash and cash equivalent
C. Investing more in financial assets -> make asset ↑
Forecast can happen the case: Asset > L + E => use flexible account
Có 2 cách: giảm ts hoặc tăng liability/ owner’s equity

Question 23: Big Ben Corporation, a leading firm in the technology industry (xếp vào loại
cash cow), has a negative difference between projected assets and projected liabilities
and shareholders’ equity. To rebalance, which of the following statements is at least
likely correct?
A. Paying more debt -> Debt ↓
B. Reissuing treasury stocks on the open market -> Equity ↑
C. Increase payout ratio (hệ số chi trả cổ tức) -> Dividend paid ↑ -> Equity ↓
Assset < L + E
Có 2 cách: ↑ asset or ↓ L + OE
Nếu chọn đáp án đúng -> chọn B do Big Ben corporation trg giai đoạn cash cow.

Question 24: Which of the following reasons leads to biased and subjective financial
statement forecasts?
A. The ignorance of the changes in business environment
B. The risk and motivation of related stakeholders
C. The consideration of industry concentration
Stakeholders: chủ thể quản lí DN (BODs, managers, investors, shareholders)
II. EXERCISES
Exercise 1. Projecting Income Statement
Big Pie Corporation has the following information:
- Revenues of year N is $10 billion
- Gross profit margin of year N is 30%
- Fixed cost (excluded depreciation): 10% of revenues
- Depreciation: $1.2 billion
Big Pie Corporation expects inflation of the year N+1 is 5% but the unit price increases
by 2%. The company also intends to invest $2 billion in machinery, which will be
depreciated in 10 years by a straight-line method. Because of an investment in fixed
assets, the gross profit margin of Big Pie Corporation is expected to increase to 35%.
Assuming that the volume of year N+1 is equal to Year N; the proportion of fixed cost (not
include depreciation) is 10% of revenues; income tax rate is 20%; no deferred tax.
Present the projected income statement for Big Pie Corporation in year N+1.
Revenue = sale volume x price
ReN+1 = ReN (1 + 2%) = 10 x (1 + 2%)
Gross profitN+1 = ReN+1 x 35% = 10.2 x 35% = 3.57
2
$2 billion chỉ là khoản đầu tư them => Depreciation expense = 1.2 + = 1.4
10
Fixed cost excluding depreciation (N + 1) = 10% x 10.2 = 1.02
Sale volume unchanged
Price ↑ 2% (If the firm adjust the price to increase by 5% -> cannot sell the product to the
market)
→g = 2%

Projecting Income statement

Indicators Year Year N Explanation
N +1
Revenue 10 10.2 ReN+1 = ReN (1 + 2%) = 10 x (1 + 2%)
COGS 7 6.63
Gross profit 3 3.57 Gross profitN+1 = ReN+1 x 35% = 10.2 x 35% =
3.57
Fixed cost excluding 1 1.02 Fixed cost excluding depreciation (N + 1) =
depreciation 10% x 10.2 = 1.02
Depreciation 1.2 1.4 $2 billion chỉ là khoản đầu tư them =>
2
Depreciation expense = 1.2 + = 1.4
10
EBIT 0.8 1.15
Tax expense (20% x 0.16 0.23
0.8)
Net income 0.64 0.92
Exercise 2. Classification of use of cash and sources of cash
Alpha Corporation has a projected balance sheet for the year N+1 as following:
Items Value (USD in Source of cash Use of cash ↓
millions) ↑
ASSETS Beginning Ending
Current Assets 1,900 1,720
- Cash and Cash 200 170 ∆ = 170 – 200 =
Equivalent 30
- Accounts Receivable 500 550 ∆ = 550 – 500 = 50
- Inventories 1,200 1,000 ∆ = 1,000 – 1,200
= 200
Non-current Assets 6,700 7,700
Net Fixed Assets 6,500 7,500
- Acquisition cost 10,000 11,500 ∆ = 11,500 –
10,000 = 1,500
- Accumulated (3,500) (4,000) ∆ = 4,000 – 3,500
Depreciation = 500
Long-term financial 200 200 unchanged
investment
Total assets 8,600 9,420
LIABILITIES &
SHAREHOLDERS’
REVENUES
Liabilities 3,100 3,450
- Short-term debt 2,000 2,300 ∆ = 2,300 – 2,000
= 300
- Accounts payable 700 750 ∆ = 750 – 700 =
50
- Employees payable 200 300 ∆ = 300 – 200 =
100
- Accrued payable 200 100 ∆ = 100 – 200 =
100
Shareholders’ Equity 5,500 5,970
- Contributed 4,500 5,000 ∆ = 500
common shares
- Share Premium 500 520 ∆ = 20
- Retained Earnings 500 450 ∆ = 50
Total Liabilities & 8,600 9,420 1,700 1,700
Shareholders’ Equity
(CFO) - Making a table of use of cash and source of cash for Alpha Corporation year N+1.
- If the net income of the Alpha Corporation year N+1 is projected at $ 800 million, please
calculate the operating cash flow of year N+1 (Tính CFO). Assuming that the net income
is all from operating activities, no gain/loss from transaction on disposal or selling of
fixed assets, no provision.
(CFO) – Indirect method
Net income 800
Noncash + Depreciation + 500
Changes in working capital - ∆ Account Receivable - 50
- ∆ Inventories + 200
+ ∆ Account payables + 50
+ ∆ Employee payables + 100
+ ∆ Accrued payables - 100
Gain/loss not from operating (Gain -/ Loss +) 0
∑ CFO + 1,500

Exercises 3 (10.5) Projecting Revenues, Cost of Goods Sold, and Inventory.

Use the following hypothetical data for Walgreens in 2014 and 2015 to project revenues,
cost of goods sold, and inventory for Year +1. Assume that Walgreens’s Year +1 revenue
growth rate, gross profit margin growth rate, and inventory turnover will be identical to
2015. Project the average inventory balance in Year +1 and use it to compute the implied
ending inventory balance.
Walgreens (in millions) 2014 2015
Sales revenues $76,392 $103,444
Cost of goods sold $54,823 $76,520
Ending Inventory $6,075 $8,678

Indicator 2014 2015 Growth rate (g) Year + 1

Sales 76,392 103,444 35.41% 140,073
COGS 54,823 76,520 39.57% 106,469
Gross profit 21,569 26,924 24.82% 33,604 = GPM x sales
= 23.99% x 140,073
Gross profit margin 28.23% 26.02% -7.82% = 26.02 x (1 – 7.82%) =
↓ 26.02−28.23
𝑥 100% 23.99%
28.23
Inventory turnover 10.37 10.37 times
times
Average industry 7,376.5 10,267 =
𝐶𝑂𝐺𝑆
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟
Ending inventory 6,075 8,678 11,856
Ending Inv2015 +Ending invY+1
Average Industry (year + 1) =
2

EndingY+1 = 2 x Average inventory – Ending2015 = 2 x 10,267 – 8,678 = 11,856

Exercise 4 (10.7) Dividends as a Flexible Financial Account.
The following data for Schwartz Company represents a summary of your first iteration
forecast amounts for Year +1. Schwartz uses dividends as a flexible financial account.
Compute the amount of dividends you can assume that Schwartz will pay in order to
balance your projected balance sheet. Present the projected balance sheet.

Step 6: Balance the Balance Sheet

May be A # L + E
Case 1: ↓A > L + E↑
Case 2: ↑A < L↓ + E
NI (Dividend -> RE)
A = L + E ->? RE and? Dividend
Items Year +1

Operating Income $58

Interest Expense (8)
Income before tax $50
Tax provision (@20%) $10
Net Income $40
Total Assets $200
Accrued liabilities 43
Long-term debt 80
Common stock at par 20
Retained Earnings at the beginning of Year +1 34
A=L+E
200 = 43 + 80 + 20 + X (REending)
X = 57
REending = REbeginning + NI – Dividends
 34 + 40 – Dividend = 57
 Dividend = 17
Exercise 5 (10.8) Long-Term Debt as a Flexible Financial Account
For this exercise, use the preceding data for Schwartz Company. Now assume that
Schwartz pays common share- holders a dividend of $25 in Year +1. Also assume that
Schwartz uses long-term debt as a flexible financial account, increasing borrowing when
it needs capital and paying down debt when it generates excess capital. For simplicity,
assume that Schwartz pays 10.0% interest expense on the ending balance in long-term
debt for the year and that interest expense is tax deductible at Schwartz’s average tax
rate of 20.0%. Present the projected income statement and balance sheet for Year +1.
LT debt => X = change in interest expense
Year +1
Items Adjusted Year + 1
Operating Income (không bị ảnh hưởng) $58 $58
Interest Expense (thay đổi đầu tiên) (8) (8 + x)
Income before tax $50 58 – (8 + x) = 50 – x
Tax provision (@20%) $10 20% (50 – x) = 10 –
0.2x
Net Income $40 40 – 0.8x
Total Assets $200 200
Accrued liabilities 43
43
Long-term debt 80 80 + 10x
Common stock at par 20 20
Retained Earnings at the beginning of Year +1 34 34 + 40 – 0.8x - 25

Interest expense = x
Interest rate = 10% of Debt
𝑥
 New debt = = 10𝑥
10%
A=L+E
 200 = 43 + 80 + 10x + 20 + 34 + 40 – 0.8x – 25
 200 = 192 + 9.2x => x = 0.87
Thay x = 0.87 vào cột adjusted Year N + 1
Nếu hỏi L – T debt => 10 x 0.87 = 8.7