Sales Forecasting / cash flow

Question 1

What are the methods of sales forecasting?

Answer 1

moving averages, correlation, extrapolation

Question 2

What is a moving average?

Answer 2

a technique for identifying an underlying trend by smoothing out fluctuations in data.
These can be 3 or 4 period M.A

Question 3

What are positives and negatives of using moving averages?

Answer 3

+ reduces fluctuations, easier to predict sales, good for erratic and dynamic markets
- doesn’t show exactly when failures occur/success periods, no external input on data

Question 4

What is extrapolation?

Answer 4

using trends established from historical data to forecast the future.

Question 5

What are positives and negatives of extrapolating data?

Answer 5

+ rough idea where business is headed, simple, logical (established data)
- making a decision that everything will remain constant, line drawn across sales is subjective

Question 6

What is correlation?

Answer 6

looking at the strength of a relationship between two variables.

Question 7

What is the independent variable?

Answer 7

the factor that causes the dependant variable to change

Question 8

What is the dependant variable?

Answer 8

The variable that is influenced by the independent variable.

Question 9

give an example of when an independent variable works with sales:

Answer 9

when investing money into marketing trying to boost sales figures. If the money invested into marketing isn’t making a positive correlation then it would be ineffective marketing.

Question 10

What are positives and negatives of using correlation?

Answer 10

+ considers external factors, simple model, hard to incorrectly use, find previous research
- hard to select correct variables, possible doesn’t show the potential sales, could choose a manipulating variable

Question 11

What is working capital?

Answer 11

pays for the day-to-day running costs such as wages and sales on credit. The cash available in the business

Question 12

What is the cycle of working capital?

Answer 12

1. sell to customers on credit
2. customers (debtors) pay up
3. buy materials
4. produce goods

Question 13

What is a cash flow forecast?

Answer 13

prediction of future inflow and outflow

Question 14

What is net cash flow?

Answer 14

Total inflows - total outflows

Question 15

What is a closing and opening balance?

Answer 15

the closing balance of the previous month is the opening balance of the new month.

Question 16

What are limitations of a cash flow forecast?

Answer 16

doesn’t show profitability, doesn’t consider other factors, hard to accurately predict, easy to overestimate, only a prediction, wont be useful if the business has no post data, uncertainty in a market fluctuations

Question 17

What are uses of a cash flow forecast?

Answer 17

identifies issues where resources need to be allocated, to secure finance, measure success and growth, allows business to set targets.

Question 18

What are index numbers?

What is a base value?

Answer 18

are an economic data figure reflecting price or quantity compared with a standard or base value.
The base value is 100
This then increases or decreases depending on capital made.

Question 19

Give an example of a base number:

Answer 19

If the index number was 95 from a previous year being 100 then the profit made would be 95% of the 100 from last year.

Question 20

How can a business increase inflows?

Answer 20

advertising effectively
market research
new products
extension strategy
deals
increase prices
sell unwanted assets

Question 21

How can a business decrease outflows?

Answer 21

change supplier
relocate
just-in-time
production method
redundancies
economies of scale
operate efficiently
delayering (remove hierarchy layers - less managers)
sacrifice quality 
better deals on utilities
remove motivators

Question 22

What is a direct cost?

Answer 22

costs which are directly associated with the manufacturing - (income statement = cost of sales)