2.2 - financial planning Flashcards
sales forecast
a prediction of how many sales a business may make in the future using statistical analysis
prediction is based on what has happened in the past, what the business wants to do in the future, and the market the business operates in
advantages of forecasting
- gives the business a clear idea of what the cash flows will be so finances can be managed
- allows the business to plan for supplies & components to reach the orders
- enable to undertake recruitment of staff to meet sales in the future
- ensures the business has the production capacity to deliver the orders/sales that will be placed in the future
time series analysis
- involves predicting future levels from past data
- set of data arranged in order over a period of time
factors affecting sales forecasting
- consumer trends: seasonal variations, fashion
- economic variables: economic growth, interest rates, inflation, unemployment
- action of competitors
sales revenue
- value of output sold by a business
- price x quantity
total costs
- fixed costs + total variable costs
total variable costs
total quantity of output x variable cost per unit of output
average costs
total cost / average output
profit / loss
total revenue - total costs
sales volume
number of units of production sold by a business
fixed costs
- costs which stay the same at all levels of output
- examples: rent, wages electricity
variable costs
- costs which change with the level of output
- example: raw materials
break even
- total costs are equal to total revenue, neither making a profit nor a loss
- fixed costs / contribution
contribution
per unit = selling price - variable costs per unit
advantages of break-even
- knows the amount of items
- decides prices
- sets targets
- fixed and variable costs
- easy way to calculate profit
disadvantages of break-even
- doesn’t take into account costs or selling prices
- forecast sales might not be achieved
- targets may be too high
budgets
- a plan that is agreed in advance
- plan not a forecast
- shows the money needed for spending
- most are set for 12 months
historical budgets
budgets that are prepared using historical figures
zero based budget
when costs cannot be justified, no budget is allocated to them
advantages of zero-based budgets
- questioning attitude is developed
- staff motivation increased
- encourages managers to look for alternatives
- allocation of resources is improved
disadvantages of zero-based budgets
- affects motivation negatively
- skillful decision-making is required
- time consuming
- managers may not be prepared
opportunity cost
what a company misses out on when purchasing something
variance
- difference between the figure that the business has budgeted for and the actual figure
- calculated at the end of the budgetary period
- actual - budget
cash flow forecast
a prediction of the inflows and outflows of cash in a business and the amount of cash the business has at the end of a period ( cash not profit )
