Chapter 6: Forecasting And Pro Forma Financial Statements

Front 1

A quantifiable estimate of future demand.

Back 1

Forecast

Front 2

In business, this is the process of estimating the future demand for your products and services.

Back 2

Forecasting

Front 3

The Six Steps of Forecasting...

Back 3

1.) Determine the type of forecasting model to be used. 2.) Determine the forecast horizon. 3.) Select one or more forecasting models. 4.) Evaluate the models. 5.) Apply the chosen model. 6.) Monitor and control the model.

Front 4

The three basic categories of forecasting...

Back 4

1.) Judgemental, 2.) Time series models, 3.) Causal models

Front 5

Qualitative and use estimates based on expert opinion.

Back 5

Judgemental forecast

Front 6

Conducted by managers to determine future sales within the company's sales territories.

Back 6

Surveys of sales forces

Front 7

Effective for virtually all firms, but particularly for the company that has a few large customers.

Back 7

Surveys of customers

Front 8

Used when a new product is introduced that has characteristics similar to those of previous products or in planning for a new business or for business expansion.

Back 8

Historical analogy

Front 9

Includes surveys, tests, and observations.

Back 9

Market research

Front 10

Uses a panel of experts to obtain a consensus of opinion.

Back 10

Delphi method

Front 11

Normally uses historical records that are readily available within a firm or industry to predict future sales.

Back 11

Time series forecasting models

Front 12

Assumes that actual sales for some recent previous time periods are the best predictors of future sales and that each time period taken in succession has an equal influence on the prediction of future sales.

Back 12

Moving average model

Front 13

The measure of the overall forecast error and represents the average difference between our forecast and actual sales data.

Back 13

Mean Absolute Deviation

Front 14

|A-F|

Back 14

Absolute Deviation

Front 15

sum of |Actual sales - Forecast sales| / n = ?

Back 15

Mean Absolute Deviation

Front 16

Assumes that the closest time period is a more accurate predictor of future sales than preious time periods, although previous time periods have some influence on future sales.

Back 16

Weighted moving average model

Front 17

Uses a smoothing constant, alpha, as an adjustment in determining the forecast.

Back 17

Exponential Smoothing Model

Front 18

A value assigned by the forecaster to adjust the forecast based on the forecaster's assumption of the relationship between sales in one time period and slaes in the next time period.

Back 18

Smoothing Constant

Front 19

Relies on other variables for its value.

Back 19

Dependent variable

Front 20

Does not depend on other variables for its value.

Back 20

Independent variable

Front 21

Rise over run.

Back 21

Slope

Front 22

Take into account variables in the general economy that affect the revenue obtained by a company; also known as external or exogenous models.

Back 22

Causal models

Front 23

A projected statement based on the forecast.

Back 23

Pro forma financial statement

Front 24

Preparing estimated financial statements for the future.

Back 24

Pro forma financial analysis

Front 25

Projects future receipts and expenditures and determines how much financing is needed on a monthly basis to correct any shortfalls in cash flow.

Back 25

Pro forma cash budget

Front 26

Projected balance sheet for a future time period.

Back 26

Pro forma balance sheet

Front 27

Based on the fact that assets and liabilities historically vary with sales.

Back 27

Percentage of sales

Front 28

Shows all tasks that must be performed and the time that it takes to accomplish these tasks.

Back 28

Gantt chart