Question

This passge below require critical analysis and breakdown

The strategic importance for forecasting will lie in the fact that it will give broad direction and create the benchmark for any future performances that will be measured against or compared. When organization’s estimate their future sales or their revenue, it is not just giving a random number regarding future sales but it also providing guidance regarding the future performance of the organization regarding other metrics like return on equity, return on assets and its future growth rate. The managers within the company use the forecasted data to decide their detailed plan as to how they are going to achieve that. The accurate forecasting of sales helps to procure necessary raw materials on the basis of which many business activities are undertaken. The accurate sales forecasting becomes the basis for several other budgets. In the absence of accurate sales forecasting, it is difficult to decide as to how much production should be done. (Chand, 2014)

Answer 1

Critical analysis and breakdown of above passage can be classified with following points that are mentioned below:

Sales Forecasting is a estimation and prediction of furture market condition for a company on the basis of past performance of a company. It can be done in terms of rupee or specific units which is based on the marketing environment. It helps in evaluation of annual growth based on past and current sales, compare benchmarks of company with industry benchmarks and helps in policies making to monitor prices and costs of a company,

Some specific level of probabilities and estimations can be forecasted such as company sales, industry sales, product line sales and category wise sales for a wider product mix. The sales manager of organisation have a job responsibilities for sales forecasting in such manners i.e., targeted customers, sales territory area, divisional sales, domestic sales and global sales.  In short term, forecasting can be done from 6 months to 2 years and for long term, it is more than 2 years.

Sales Budgeting is the prediction of future sales volume and selling expenditures which are based on past performance data. The sales budgeting on sales volume classifies such as product wise quantities for sales, sales person wise quantities, customer wise quantities, territory wise quantities for sales, regional wise quantities, national wise quantities and global wise quantities which are based on daily, weekly, monthly and yearly basis. Further, the selling expenditues include wages, salaries, commissions, incentives, hiring sales team and other operating expenses (rent, power, supply, machinery etc) can also be included because they are used during selling process. Budgeting help in the evaluation of working capital for maintaining efficiency in business operations. It lead to cost effectiveness & eliminate waste in the production process. It can be said that sales budgeting is the initial budget drafting that lead to financial budget of a company.  

In the absence of accurate sales forecasting, it is difficult to decide as to how much production should be done. It can be explained that sales forecasting strategy helps company for making future decision in various ways such as measuring when and how much to buy raw materials for productions process, ability to measure sales trend in the market, ability to pre-planned for production & capacity needs, help in optimization in cash flow of a company, ability to determine the expected return on investment and determining the business value above the current assets value. It can be defined that all future business actitivies highly depend on the sales forecasting strategy or else the company will be faced difficultly to survive in the competitive market.