Sales Forecasting / cash flow Flashcards
What are the methods of sales forecasting?
moving averages, correlation, extrapolation
What is a moving average?
a technique for identifying an underlying trend by smoothing out fluctuations in data.
These can be 3 or 4 period M.A
What are positives and negatives of using moving averages?
+ 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
What is extrapolation?
using trends established from historical data to forecast the future.
What are positives and negatives of extrapolating data?
+ rough idea where business is headed, simple, logical (established data)
- making a decision that everything will remain constant, line drawn across sales is subjective
What is correlation?
looking at the strength of a relationship between two variables.
What is the independent variable?
the factor that causes the dependant variable to change
What is the dependant variable?
The variable that is influenced by the independent variable.
give an example of when an independent variable works with sales:
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.
What are positives and negatives of using correlation?
+ 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
What is working capital?
pays for the day-to-day running costs such as wages and sales on credit. The cash available in the business
What is the cycle of working capital?
- sell to customers on credit
- customers (debtors) pay up
- buy materials
- produce goods
What is a cash flow forecast?
prediction of future inflow and outflow
What is net cash flow?
Total inflows - total outflows
What is a closing and opening balance?
the closing balance of the previous month is the opening balance of the new month.
What are limitations of a cash flow forecast?
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
What are uses of a cash flow forecast?
identifies issues where resources need to be allocated, to secure finance, measure success and growth, allows business to set targets.
What are index numbers?
What is a base value?
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.
Give an example of a base number:
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.
How can a business increase inflows?
advertising effectively market research new products extension strategy deals increase prices sell unwanted assets
How can a business decrease outflows?
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
What is a direct cost?
costs which are directly associated with the manufacturing - (income statement = cost of sales)
