2.2 Financial Planning Flashcards
What is consumer income?
the amount of income remaining after taxes and expenses have been deducted from wages
What are consumer trends?
the habits and behaviors of consumers that determines the goods and services the y buy
What are economic growth?
the rise in output of an economy as measured by growth in Gross Domestic Product (GPD) usually as a percentage
What is economic variables?
measures within the economy which have effect on businesses and consumers, Examples include unemployment inflation and exchanges rates
What is Extrapolation?
forecasting future trends based on past data
What is forecasting?
a business process assessing the probable outcome using assumptions about the future
what is sale forecast?
projection of future sales revenue, often based on previous sales data
What is time series data?
a method that allows a business to predict future levels from past figures
What is the purpose of sales forecasts?
- How much stock to purchase?
- How many staff to employ?
- How much finance is required?
- What marketing strategy?
What is time series analysis?
this is a forecasting technique which uses historic data to predict future sales forecasts
what are different ways of time series analysis?
- trend
- seasonal fluctuation
- cycle fluctuation
- random fluctuation
how can trends be used as a method of analysis?
raw data shows patterns of sales figures, this allows trends to be identified
how can seasonal fluctuation be used as a method of analysis?
most business are unlikely to maintain constant leads of sales over a 12 month period
how can cycle fluctuation be used as a method of analysis?
performance of a business based on the position of the economy in the business cycle
how can random fluctuation be used as a method of analysis?
freak figures that stand out from the trend, usually influenced by external factors
What is important to remember about time series analysis?
- time series analysis does not attempt to explain data it is solely looking at the data to inform prediction
- further investigation may be required to identify the factors behind the result
How can you calculate sales adjustments?
Change on sales/original x 100
What are the benefits of sales forecasting?
- informs cash-flow forecasts
- plan for deliveries of supplies
- ensures correct staffing levels
- ensure that business can identify any capacity issues
What factors affect sales forecasting?
- consumer trends
- economic variables
- action of competitors
How do consumer trends affect sales forecasting?
business need to satisfy their customers’ needs and desires the ones who are the most successful at doing this are the ones who can anticipate changes in consumer trends, either by identifying them or influencing them
What are the factors under the consumer trends?
- seasonal variation
- fashion
- long term trends
How does Seasonal Variation affect sales forecasting?
- certain industries are seasonal in nature and its important that businesses account for that in their planning
- The obvious ones are holiday resorts, Christmas tree and ice cream sales
- However, utility companies, such as gas ad electric also have season variation in their usage
- Its important that businesses that see high levels of seasonal demand account for this to ensure that any spending on either capital or revenue expenditure dont impact negative on the businesses cash-flow
How does fashion affect sales forecasting?
- consumer preference and tastes can vary widely and quickly interpreting and anticipating fashion choices is a difficult and unpredictable business
- fashion and technology are 2 sectors hit hard by this uncertainty and as such, it makes accurate sales forecasting very difficult
How does long term trends affect sales forecasting?
- whilst some trend change quickly, other charge over time
- from Black & White TVs and leaded petrol engine cars to Smart devices that allow you to surf the internet there are longer term developments in consumer trends
- as technology develops slowly, so do our expectation of services, from tape recorders and blockbusters to streamed films as you want them, its taken years for these developments to materialize
- environmental considerations also impact on consumer views as they currently strive to ‘protect the planet’
How does economic variables affect sales forecasting?
- charges in the wider economy will have a great impact on the businesses ability to accurately forecast.
- they economy in this respect refers to consumers (households), businesses and government
- Perception on future performance will have a big impact on sales predictions
What are difference factors under economic variables?
- economic growth
- interest rates
- inflation
- unemployment
- exchanges rates
How does economic growth affect sales forecasting?
- economic growth is measured by the relative increase in GDP of an economy. it can affect forecasts in the following wages
- if GDP grows at a rate which is in line with, or better then anticipated, this can be seen as positive and an lead to an increase in business sales as confidence is high
- if GDP growth slows ,this can be an indicator towards future issues, which can lead to reduced confidence and reduced consumer spending on non-essential items
How does a rise in interest rates affect sales forecasting?
- the cost of borrowing increases due to larger interest payments, this reduces people willingness to take loans to purchases larger items
- customers have more intensive to save as they receive more interest, more saving reduced spending
How does a fall in interest rates affect sales forecasting?
- as less interest is paid, the cost of borrowing larger amounts of money is reduced, infrastructure and larger household purchases
- As rewards for saving are less, there’s little incentive to do so consumers may spend cash instead
How does inflation affect sales forecasting?
- inflation measures the general rise in the increase in price over time
- increases in price must be matched to similar wages rises, otherwise the purchasing power of the consumers income is reduced. Over the long term, high inflation will reduce customer spending
- This would usually lead to reduced sales forecasts
How does unemployment affect sales forecasting?
- unemployment measures the number of people who are out of work but actively seeking employment
- if unemployment is low, this means that businesses feel confident about the strength of the economy as consumers feel secure in their jobs, with less need to save
- However, if unemployment is high, that these out of work will be living off reduced incomes, meaning they have less disposable income, this will lead to a reduction in spending on all but non-essential items, this would lead to reduced sales forecasts
How does exchange rates affect sales forecasting?
-the exchange rates between one currency and anther reflects the relative value of those currencies and their purchasing power in the other
-Exchange rates only affect a business if they either purchase products or material from overseas, or they sell to those markets
-If the value of the pound falls relative to another currency, then it becomes cheaper for customers from overseas to buy UK manufactured products, in this scenario, companies would increase their sales
forecast
- if the value of the pound rises, then the goods sold overseas increases in prices , this would usually see a reduction in sales forecasts
how does action of competitors affect sales forecasting?
the action of competitors has a major impact on many areas, from innovation to pricing and promotion. Sales forecasting is an area which can be greatly affected by the action of competitors
What issues will businesses have to consider when considering the actions of competitors?
- New players moving into markets
- Rivals new products
- Internal development
- business relocating to/from your area
- web based sales
- acquisition and merger (joining of businesses)