3.3 Flashcards
What is quantitive sales forecasting
A statistical technique to make predictions about the future using previous data.
What a business can do with QSF
-organise production
-organise resources
-organise marketing
to meet sales predictions
what is time series analysis
smooth out historical data collected at certain time intervals, to see if there are any underlying trends
moving average
smooth out fluctuations in data
3 quarter moving average:
-takes average of 3 time periods
4 quarter moving average:
-takes average of 4 time periods
benefits of QSF
-shows how sales fluctuate in a cycle
-allows the business to organise raw materials and production
drawbacks of QSF
-uses past data which is no guarantee of the future
-moving averages doesnt take into account how recent the data is
doesnt consider swot or pestle
scatter graphs
-shows underlying trends
-shoes correlation
extrapolation
extend the line out to predict for the future
-relies on past data staying the same
-good for stable markets
What is investment appraisal
a way of a business working out how much a project will make and when, so investors can compare projects to see which one is most suitable for the businesses needs.
-Planning process:
it works out if a project is profitable or not, as all investments are a risk, and it calculates if the return is worth it.
-Decision making:
decides which project should get the funding
simple payback
payback periods- hoe long it takes a project to generate enough cash to cover the initial investment
steps:
-see how much the investment costs
-add up all the payback periods, till you reach a period that is midway
-use the calculation
amount left
—————— x100
amount in that period
+ve and -ve
+ve:
-quick and easy to calculate
-good for high tech markets- tech becomes obsolete, so they want to gain the initial investment before it becomes obsolete
-ve:
-doesnt consider the time value of money
-only focuses on speed not profitability
-ignores cash flow (if investment still makes a return) after payback
Average rate of return
compares profitability of different projects and prioritises those with the highest profitablilty
-Compares the net return (income minus costs) to the investment
steps:
add up all cash inflows, and minus outflows
divide by number of years to get average
use formula:
average net return
—————————– x100
cost of investment
-higher %- more favourable
+ve and -ve
+ve:
-takes into account profitability and cash flow
-easy to calculate and understand
-ve
-doesnt take into account timing of cash flow
-doesnt account time value of money
Net present value
calculates after ARR and payback
-takes into account that money in the future is not of the same value as today, so adds a discount table
steps:
-multiply each year by discount table, to get the present value
-add up all year present values, and minus from the initial cost to get NPV
-if negative, wont make any money
-if positive, makes money
+ve and -ve
+ve:
-helps make decisions on which project makes more money
-ve
-complex and hard to calculate
-hard to work out a discount factor- depends on interest rates and if its high, more likely to be unprofitable
