2.6 Forecasting

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2.6 Forecasting


Pages:
17
School:
University of Texas at Austin
Course:
Fin 320f - Foundations of Finance
Foundations of Finance Documents

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Forewarned, forearmed; to be prepared is half the victory! Don Quixote by Miguel de Cervantes Spanish novelist, poet & playwright (1547 – 1616) Foundations of Finance 2.6 Forecasting A prediction of a future financial state A tool to guide, coordinate and control the firm’s actions toward achieving the firm’s objectives 2011 - 2023© HToprac What is a forecast? 3 Long-term focus (2 – 10 years) A general guide for managing the firm Usually top-down Addresses such issues as: • Developing new products • Expanding & developing markets • Adding capacity (new plants, offices) • Financing all of the above 2011 - 2023© HToprac Strategic plan 4 Short-term focus (rolling 4 quarters) An expression of commitment Combines top-down and bottom-up • Begins with the sales (demand) forecast • Add in the expense forecast • Develop pro-forma income statement 2011 - 2023© HToprac Operating forecast 5 The most important ingredient • Too high? Excess inventory • Too low? Inventory shortages Developed from sales teams’ estimates, economic indicators & management’s judgment 2011 - 2023© HToprac Begin with the sales forecast 6



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