- CFA Exams
- 2025 Level I
- Topic 5. Equity Investments
- Learning Module 7. Company Analysis: Forecasting
- Subject 3. Forecasting Operating Expenses and Working Capital
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Subject 3. Forecasting Operating Expenses and Working Capital PDF Download
Cost of Sales and Gross Margins
As issuers' disclosures about operating costs are typically less detailed than revenue disclosures, analysts can use aggregated forecast objects (e.g. cost of sales, SG & A) or summary measures (e.g. EBITDA) to forecase operating expenses. However, forecasts for operating expenses should be coherent with revenue forecasts.
COGS: COGS can be estimated as a percentage of sales. Are gross margins rising or declining? Is a hedging strategy being used?
SG & A expenses: They have a less direct relationship with revenues.
Working Capital Forecasts
Working capital forecasts typically use efficiency ratios combined with revenue and operating expense forecasts to project accounts receivable, inventory, accounts payable, and other current assets and liabilities.
The choice of forecast object can vary depending on the forecast horizon.
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