I could not understand the following logic taken from the CFAI Equity valuation reading. Can anyone explain that to me. Thanks in advance
“If GDP is forecast to grow at 4% and the company’s revenue is
forecast to grow at a 15% faster rate, the forecast percent change in revenue would
be 4% × (1 + 0.15) = 4.6%, or 60 bps higher in absolute terms.”
The wording is poor; one possible interpretation is that the company’s revenue will grow at 19% (= 4% + 15%).
Rest assured, on the exam the wording will be crystal clear.
Thank you so much.
I realized that the wording was not sufficient enough to grasp the idea. I took the logic from the CFAI textbook.