The Expert Systems case focuses around a business that develops computer programs for firms in the banking industry. John Grady, CFO for ESI, needs help in creating a detailed forecast for the executive meeting and to present it to the group. Using the information given in John’s memos, his questions must be answered to help show the top managers how certain assumptions affect various outcomes. One of John’s memos includes the percentage-of-sales formula to calculate the additional funds needed (AFN) to support the projected increased level of sales. John explains that AFN is calculated by subtracting spontaneous liability increase and increase in retained earnings from the required asset increase. This formula is shown below: AFN = …show more content…
Due to this method of forecasting requiring the items to be estimated based on relations to sales figures, it is necessary that movements in the items to be forecasted are highly correlated with fluctuations in the sales figures. If there is no clear correlation between the items to be forecasted and sales figures, then that item must be forecasted using a different technique. Here is a very simple example; if, after examining and analyzing historical financial statement data, an analyst determines that inventory levels are typically at 30% of sales, and the sales forecast for the coming year is for $100,000 dollars in sales, then, according to the percent-of-sales method of forecasting, the analyst can estimate inventory of approximately $30,000, or 30% of the estimated sales figure. There are three steps in the percent-of-sales forecasting process. The first step is to analyze historical financial statement data to determine which items are correlated with sales figures and which are not. Only the items which are correlated with sales figures can accurately be predicted or forecast using the percent-of-sales method. Items that have no concrete relation to sales figures must be estimated using a different technique. The next step is to forecast sales for the fiscal
The percentage Breakeven Sales Change can be calculated simply by dividing the unit sales change by the initial sales level, or may be calculated more directly with the following expression:
The current demand forecasting method is based on qualitative techniques more than quantitative ones. If the forecast is not accurate, the company would carry both inventory and stock out costs. It might lose customers due to shortage of supply or carry additional holding costs due to excess production. If the actual demand doesn’t match the forecast ones, and the forecast was too high, this will result in high inventories, obsolescence, asset disposals, and increased carrying costs. When a forecast is too low, the customer resorts to a competitive product or retailer. A supplier could lose both sales and shelf space at that retail location forever if their predictions continue to be inaccurate. The tolerance level of the average consumer
A firm has decided through regression analysis that its sales (S) are a function of
* Forecasting is an impartial strategic ingredient that will ensure apt base for reputable planning. Our forecast is always the first step in developing plans in running the business along with our future plans of growth strategies. With this tool, we are able to anticipate our sales within reason that then can allow for us to control our costs in conjunction with inventory which will then help us to enhance our customer service. Sales forecasting is a vital strategic tactic in our company’s methodology.
I have project that the first-year revenue of $20,000 and a 15% growth rate for the next two years. The complete cost of sales is projected to average 50% of gross sales, including 40% for the purchase of equipment and 10% for the purchase of additional items. Net income is projected to reach $70,000 in four three as sales increase and operations become more
o In summary this analysis shows the percent of every dollar in sales that is
Information is data that has been processed so that it has meaning and value to a recipient,
Data comprises of factual information. Data are the facts from which information is derived. Data is not necessarily informative on its own but needs to be structured, interpreted, analysed and contextualised. Once data undergoes this process, it transforms in to information. Information should be accessible and understood by the reader without needing to be interpreted or manipulated in any way.
3. Refer to the monthly sales forecasts given in the first Table. Assume that these amounts are realized and that the firm’s customers pay exactly as predicted.
It is generally accepted that information is a vital commodity for the successful operation of today’s organizations. Nowadays modern business organizations are using computerized information systems in order to obtain such information. However as the technology advances rapidly the main issue is how can an organization should effectively use such an information system - which its management sometimes can be unpredictable - in order to effectively help the whole organization structure to improve and take the most out of it.
3. When a new business is started, or a patent idea needs funding, venture capitalists or investment bankers will want to see a business plan that includes forecast information related to a profit and loss statement. What type of forecasting information do you suppose would be required?
Based on the case, there were two fundamental changes to standardize and improve the accuracy of forecasts. The first area was to "switch the focus of the focus of the forecasting process from sell-in to sell-through". This meant tracking closely what was sold in one region and shipped from another made forecasting market demand a more accurate exercise. The second area centered on ignoring capacity constraints to estimate demand. In the past, "forecasting was affected by perceptions of present and future supply chain capacity".
1. Sales forecast – (at $ 30 retail price with the assumption of $15 whole sale price)
the manager may use a simple analysis of past operating data to obtain a percentage of sales