3.3 Flashcards
Define time series analysis
Time-series analysis is used to analyze historical sales data over a set period of time and identify patterns that can help forecast future sales. One of the key methods in time-series analysis is the moving average
Define quantitative sales forecasting and give adv
Quantitative sales forecasting is using numerical data in order to make predictions
ADV of quantitative sales forecast
- Data driven, not a guess,opinion or intuition= data is grounded = more accurate= can keep resource allocation= reduces uncertainty in planning
- Generate insight about consumer trends,behaviour and patterns- can identify what is affecting sales eg seasons
- easy to caluclate
Dis of quantitative sales forecasting
- Time consuming as requires alot of time and effort, can be bad for small firms due to lack of knowledge
- Previous data doesnt = new data
- Doesnt account for changes in market
- Needs operating to be valuable
- If the historical data is inaccurate or incomplete, the forecasts based on that data will also be flawed. Reliable forecasting depends on accurate, up-to-date data.
Define extrapolation then define moving averages and how to calculate them
Extrapolation- using past data to maek predictions about the future
Moving averages are used to flattern out any fluctuations in the data which could change predictions
3pt moving average= (Jan+ Feb+ March) / 3
4pt moving average= same process / 4
Define scatter graph and line of best fit and correlation
A scatter graph plots individual data points to show the relationship between two variables, such as time and sales. It helps identify any patterns or correlations in the data.
Line of best fit= shows trend of data and can be used to make estimate. Closer points to line= more correlation
Where there is a link between two variables there is a correlation
What are the 3 main methods of investment appraisal
- Simple packback
- Average rate of return (ARR)
- Discount cash flow (NPV)
Define simple payback and how to calculate
Simple payback= time taken for a project to repay its initial investment
> expressed in time,days years
Payback = amount remaining to recover / amount recovered in following year x12
Adv and dis of payback
ADV of payback
- Simple and easy to calculate and understand
- Focuses on cash flow = useful for firms with liquidity issues
- Emphasis on speed of return= good in rapidly changing markets
- Good for assessing risk – shorter payback = less risk
DIS of payback
- Doesnt take into account inflation
- Ignores cash flow after payback
- Ignores profitability after payback is reached
A shorter payback period is preferable, as it indicates a quicker return on investment.
Define ARR and give formula
ARR measures the profitability of an investment over its lifetime as a percentage of the initial investment
Total profit from investment= Revenue - Cost of investment
Annual average profit = Total profit fromm investment / expected lifespan
ARR= average annal profit / cost of investment x100
A higher ARR suggests a more profitable investment
Adv and dis of ARR
ADV of ARR
- Simple and easy to calc= good for businesses with lack of expertise
- Helps resource allocation to see if an investment is worth it
- Allows to compare projects
DIS of ARR
- Ignores time value of money= inaccurate calculation
- Doesnt consider risk/ uncertainty
- Doesnt consider factors like liquidity
Define NPV and how to calculate
Discount cash flow (NPV)- calculates the monetary value now of the projects future cash flows
Present value = discount factor x cash flow
NPV= all PV - initial investment
Adv and dis of npv
ADV of NPV
- Considers all future cash flows
- Considers time value of money= can lead to better decisions
DIS of NPV
- Future= estimates
- Less certain in LR
- More complex to calculate
– Requires choosing a discount rate – which can be subjective
A positive NPV means the investment is expected to generate more cash than it costs, so it is considered viable.
A negative NPV indicates the investment is not worth pursuing as it will result in a net loss.
Define decision tree and calculations
A decision tree is a model which represent the likely outcomes for a business of a number of courses of action, showing the financial consequence of each
Expected Value (EV) = ∑(Outcome Value×Probability)
Net Gain = Expected Value−Cost of Decision
Adv and dis of decision trees
ADV of using decision trees
- Clarifies possible courses of action
- Adds financial data to decisions
- Makes managers account for risk
DIS of using decision trees
- Estimates may be inaccurate – outcomes and probabilities are often guessed.
- Doesnt consider qualitative info
- Doesnt take into account dynamic nature of firm
Define CPA and what’s it purpose
Critical path analysis involves using a network diagram to manage the various tasks required to complete a project
Purpose
- Help a manager identify shortest time a project can be finished
- Optimising project duration: By identifying the tasks on the critical path, you can focus on minimising delays in those tasks to avoid project delays.
- Resource allocation: Helps in determining which tasks to prioritise to ensure the project is completed on time.
Define EST LFT and float time and equation for float
The Earliest Start Time (EST) is the earliest time that a task can start without delaying the project.
The Latest Finish Time (LFT) is the latest time a task can finish without delaying the project.
The Total Float (or slack) is the amount of time a task can be delayed without delaying the overall project.
Total Float = Latest Finish Time (LFT) – Earliest Start Time (EST) – Task duration
Adv and dis of CPA
ADV of CPA
- finds critical path = increased efficiency and decreased waste = supports lean production
- helps introduce deadlines for activities= increases efficiency
- emphasises importance of time management, helping project teams stay focused on meeting deadlines
DIS of CPA
- Time/ cost of creation = increases cost of production and decreases revenue
- estimates = inaccurat estimates = bad decision = wastage of resources
- Ignores external factors
Steps to identify the Critical Path:
List all tasks: Identify all the activities involved in the project.
Identify dependencies: Determine which tasks depend on the completion of others before they can start.
Draw the network diagram: This is often done using arrows (showing the tasks) and nodes (representing the start and end of tasks).
Calculate the earliest start time (ES) and latest finish time (LF) for each task.
Find the critical path: The critical path is the longest path from start to finish. The tasks on this path have zero float and any delay in these tasks will delay the project.
