financial planning Flashcards
2.3.2
sales forecasting
involves predicting future sales volums /values to inform key decisions
factors affecting sales forecasts
consumer trends
actio ns of competitors
economic variables
advanatges and disadvantages of sales forecasting
+ helps to make key decisons such as:
purchasingraw materials, promotions, staffing
- data used to forecast may not be accurate
- consumer trends can be volatile
- economic variables can be volatile
diffiulties of sales forecasting
: uncertaintly
: limited historical data
: competitive landscape
: technological advancement
: data quality and accuracy
: seasonality patterns
: complex cosumer behaviour
revenue
the total income earned from sales
revenue formula
price x quanitity
fixed cost
the costs which have to paid regardless fo the number of customers
variable costs
the costs which change as output increases or decreases- have to be paid for each customer
total cost calculation
fixed costs + variable costs
profit calculation
revenue - total costs
contribution per unit
represents the amount of revenue that contributes to covering fixed costs and generating profit after variable cost is deducted
contribution per unit calculation
selling price per unit - variable cost per unit
break-even formula
fixed costs/ contribution
margin of safety
the difference between actual level of sales and breakeven point
formula for margin of safety
actual sales - break-even poin
advanttages and disadvantages to margin of safety
+ allow to plan how many products need to be sold to get profit
+ make judgement about price and costs
+ can get loan from banks
- assumes the firm sells all products ata single price
- assumes that costs increase constantly and wont benefit from bulk buying
limitations of break-even analysis
- accuracy, quality of data
- price or costs might change but cant change the analysis easily
budgets
a financial plan for the future
purpose of budgets
: control and monitoring
; motivation
zero based budgets
involves creating a budget with all spending justifiied to ensure value for money is
zero based budgets advantage and disadvantages
+ can help to minimise costs
- past data may not be the best indicator for the future
- external factors can affect budgets
- time consuming
variance analysis
compares budgeted figure with actual figures
