An analyst should make financial projections of income statements and balance sheets for a valuation in a high-inflation environment by simply projecting all items on a nominal basis.

Question

Quizplus · Accepted Answer

In a high-inflation environment, projecting financial statements on a nominal basis can be misleading as it does not account for the impact of inflation on the financials. To make accurate financial projections in such an environment, an analyst should adjust the projections for the effects of inflation. This can be done by projecting financial statements in real terms or by adjusting the nominal projections for inflation using appropriate inflation indices.

An Analyst Should Make Financial Projections of Income Statements and Balance