Question

Identify techniques for forecasting financial statements as discussed in the text, and explain when they should be used.

Answer 1

In general there are 2 type of tools used to forcast financials :

1. Qualitative

2. Quantitative

Example of Qualitative tools are:

1. Expert openions: In this method, opinions and views from expert are taken and used to make the assumptions and forcasts

2. Delphi Technique: In this method, a series of questionnaires are prepared and a group of experts are asked to answer that. Once we get the result of first questionnaire, a second questionnaire is prepared based on the results of the first. This is again given to the experts, who are then asked to reevaluate their responses to the first questionnaire. This process continues until the researchers have a narrow shortlist of opinions.

3. Consumer surveys

Example of Quantitative tools are:

1. Proforma financial statements: This technique use historical values from last 2-3 years and forcast based on that

2. Time series forcasting: In this trend is studied over a period of time

3. Cause effect method