Question

Explain what forecasting is. Do you have any good or bad examples of forecasting done by firms with which you are familiar? As a financial manager in developing forecast for the firm, where would you go to in order to start your forecast and refine it with more accurate future projections concerning interest rates, raw material prices and the like to build your estimates?

Answer 1

Forecasting identifies various trends in external and internal historical data so as to project these trends in order to provide the decision makers with information regarding what the financial status of a company might be in the future.

Good examples of Forecasting- Apple, Microsoft.

Bad example- Enron

As a financial manager in developing forecast for the firm detailes annual reports of the firm needs to be studied. Also analysis by various investement firms needed to be taken into account. then following points need to be revisited and taken into account

• Actual customer buying results and attitudes. For example how do price changes, or promotions affect sales on a long and term basis?
• Marketing and brand efforts and long term impact
• Competitive and distribution changes. For example retail store sales are growing about 1 % a year and internet sales 15-20 %
• What customers have done in the past in the market
• Time series trends for the market and company
• Seasonal or cyclical factors. Sales are affected by swings in general economic activity (e.g. increases in the disposable income of consumers may lead to increase in sales for products in a particular industry). Seasonal and cyclical factors occur in a regular pattern;
• Erratic events; these include strikes, fashion fads, war scares and other disturbances to the market which need to be isolated from past sales data in order to be able to identify the more normal pattern of sales