3.3 Flashcards
how to calculate moving averages :
go do some moving averages questions
pros of Quantitative Sales Forecasting
Data-Driven: Quantitative sales forecasting relies on historical data and statistical methods, which can provide more accurate and objective forecasts
Predictive Power: By analyzing past sales trends and patterns, it can predict future sales with a higher degree of confidence, helping businesses plan better.
cons of quantitative sales forecast
Assumptions: Quantitative forecasting relies on the assumption that past patterns will continue into the future, which might not always hold true, especially in rapidly changing markets.
Data Dependency: Quantitative forecasting requires accurate and extensive historical data. Poor quality or insufficient data can lead to inaccurate forecasts.
what is investment appraisal?
involves comparing the expected future cash flows of an investment with the initial outlay for that investment
practice simple payback period
go do a few payback period questions. explanation on 3.3.2
pros of payback period
It is a simple method to calculate and understand
It is particularly useful for businesses where the cash flow management is vital
Businesses can identify the point at which an investment is paid back and contributing positively to cash flow
Businesses purchasing equipment can calculate whether an investment ‘pays back’ before an upgrade is available
cons of payback period
It provides no insight into the profitability of investments
Payback only considers the total length of time to recover an investment
Neither the timing nor the future value of cash inflows is considered
It may encourage a short-termism approach
Potentially lucrative investments may be dismissed as they take longer to pay back than alternatives
what is average rate of return
compares the average profit per year generated by an investment with the value of the initial outlay
go do a few questions
pros of arr
It considers all of the net cash flows generated by an investment over time
It is easy to understand and compare the percentage returns with each other
cons of arr
The opportunity cost of the investment is ignored as values are nether expressed in real terms nor adjustments made for the impact of interest rates and time
what is net present value?
Net Present Value (NPV) is a financial metric used to evaluate the value of an investment or a project
The NPV of an investment takes into account the effects of interest rates and time
It represents the present value of the future cash inflows minus the present value of the future cash outflows
GO DO A FEW NPV QUESTIONS
advantages of npv
It considers the opportunity cost of money
Discount tables are used to calculate forecast future values of net cashflows
Businesses may choose different discount tables (20%, 10%, 5% etc) to adjust the level of risk involved in a project allowing a range of scenarios to be considered
disadvantages of net present value
It is more complicated to calculate and interpret than other methods of investment appraisal
One of the primary challenges of using the NPV method is accurately forecasting future cash flows
Selecting an appropriate discount rate can be challenging, and even small changes in the discount rate can significantly impact the calculated NPV
The NPV method only considers the financial costs and benefits of a project and does not account for non-financial benefits or costs e.g environmental damage
what are decision trees
a quantitative method of tracing the outcomes of a decision so that the most profitable decision can be identified
whata re some limitations of decision trees?
Constructing decision trees that can support effective decision-making require skill to avoid bias and take significant amounts of time to gather reliable data
A decision tree is constructed using estimates which rarely take full account of external factors
The time lag between the construction of a decision tree diagram and the implementation of the decision is likely to further affect the reliability of the expected values
