Industry and company analysis: growth query

CFA Level II Equities
#1

Hi Guys,

I was going through examples provided in the CFA curriculum (industry and company analysis). There were questions on calculating the growth rate of a company given sales for three consecutive years. In the first example, they calculated the annual compounded growth rate by taking the first and te last year’s sales value. Whereas, in the second example, they just used the 2nd and 3rd years sales to compute the annual growth rate. The question seemed to be exactly the same.

So, how wold we know whethr to apply a compounded annual growth rate or the annual growth rate.

For more details, you can check out Example 1 and 2 from this Study session.

Thanks for your response.

#2

q2 asks - what was the growth rate in 2010 -> this has to be compared to only 2009 …

q1 -> they ask to compare recent growth rate of 1 segment against another

you could compare the 2011 vs 2010 of the 2 sectors against one another – this is enough.

sector 2 -> 1448 / 1588 -> negative growth, sector 1 -> 3861 / 3572 - positive

but they also say that overall sector 2 is exhibiting a drop while sector 1 has been growing.

they are also doing one more step of analysis - comparing the growth rate against the CAGR - to indicate the sector patterns.

hope this helps

#3

Thanks cpk123. This helps.