This module is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 7 of 7 · 14 min
Why analysts disagree: revenue, margins, investment and financing
Two analysts using the same model reach different values because they assume different revenue growth, margins, investment and long-run growth; a consistent forecast ties investment to growth, and financing should not be a source of value.
In short
- ; long-run FCFE growth = equity reinvestment rate × ROE.
- Higher revenue raises value only if margins hold up; revenue up with margins down can lower value. The net effect depends on the sizes.
- Be wary of forecasts where revenue and income grow without proportional investment: that inflates FCFE and value.
- Investment growing faster than income lowers FCF (higher reinvestment, lower return on capital); slower than income raises FCF (lower reinvestment, higher return on capital).
- Financing choices can shift FCFE, but value creation comes mainly from operations; a model should not create much value from financing. Diverging views are healthy for price discovery.
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