2.2 Financial planning Flashcards
Why should you sales forecast?
- Vital planning activity
- Useful part of competitor analysis and helps focus on market research
- Forms the basis for most other parts of business planning
What is a moving average used for?
It takes a series of data and smoothes it out in order to create an average
What factors affect sales forecasting?
- Consumer trends
- Economic variables
- Competitor actions
How do consumer trends affect sales forecasting?
- Demand in markets change as consumer tastes and fashion changes
- Affects overall market demand and market shares of existing competitors
How do economic variables affect sales forecasting
- Demand sensitive to change in variable such as exchange rate, interest rates and taxation
- Overall strength of the economy (GDP) important
How does competitor actions affects sales forecast?
Hard to predict but often significant reasons why sales forecast prove over-optimistic
How do you find contribution per unit?
Contribution per unit = selling price - variable cost per unit
What is contribution?
Looks at the profit made on each individual product
When does break even occur?
When total costs is equal to total sales/revenue
How do you work out break even output?
break even output (units) = fixed costs/contribution per unit
How do you find the margin of safety?
margin of safety = actual output - break even output
How do you work out total costs?
total costs = fixed costs + variable costs
How do you work out total revenue?
total revenue = units sold x price per unit
What are the strengths of break even analysis?
- Focuses on output required before a business reaches profitability
- Illustrates importance of keeping fixed costs down
What are limitations of break even analysis?
- Unrealistic, fixed costs can vary with output
- Sales unlikely to be same as output, may be some wasted output
