Question

Jane Thompson is managing a team of analysts assigned to the report on firms operating in the mining industry. The team is currently researching and analysing a firm that mines for lithium. The last 5 years the company has benefited from an increase in the price of lithium of about 10% each year, and has returned a large profit. The members of Jane’s team insist that this will continue, and that the forecast sales growth rate in their model should be 10% for each year. On the other hand, Jane is concerned that if this growth in the lithium price does not continue, the profits and value of this mining company will be negatively affected.

Discuss the problem that Jane faces with her team’s approach. Recommend a course of action that Jane can use to ensure the analysis conducted by her team is reasonable and accounts for different contingencies (possible outcomes). Explain how this should be presented to the potential investors.

Answer 1