Glossary: M07 — Company Analysis: Forecasting

Term	Definition
Bottom-Up Forecasting	Building revenue forecasts from individual product or segment data upward
Capital Requirements	The total capital (CapEx + working capital) needed to support projected operations
Degree of Operating Leverage (DOL)	The sensitivity of operating income to changes in revenue; high DOL means high fixed costs
Disruptive Technology	An innovation that significantly alters or replaces existing business models or products
Fixed Costs	Costs that do not change with production volume (rent, salaries, depreciation)
Growth CapEx	Capital expenditure for expanding capacity beyond current levels
Hybrid Forecast	A forecasting approach combining top-down and bottom-up methods
Maintenance CapEx	Capital expenditure to sustain existing operations, approximately equal to depreciation
Management Guidance	Forward-looking statements by company management about expected future performance
Network Effect	A phenomenon where a product becomes more valuable as more people use it
Operating Leverage	The degree to which a company uses fixed costs in its operations, amplifying earnings volatility
Retention Ratio	The proportion of net income retained (not paid as dividends): $b=1-\text{Payout Ratio}$
Revenue Driver	A factor that significantly influences a company’s revenue (volume, price, market share)
Scenario Analysis	Evaluating multiple possible outcomes (base, bull, bear) to assess forecast uncertainty
Secular Trend	A long-term trend not related to the business cycle (e.g., demographic shifts, digitalization)
Sensitivity Analysis	Measuring how changes in key assumptions affect the output of a forecast or valuation
Sustainable Growth Rate	The rate at which a company can grow using only retained earnings: $g=\text{ROE}\times b$
Top-Down Forecasting	Starting from macroeconomic and industry data to derive company-level revenue forecasts
Variable Costs	Costs that change proportionally with production volume (raw materials, direct labor)
Working Capital	Current assets minus current liabilities; changes in working capital affect cash flow

---

Related: M07 Module Page | Equity Formulas