Lesson 4: Forecasting Techniques/FAR

Internal Forecast

A sales forecast based on a buildup, or consensus, of sales forecasts through the firm’s own sales channels

Cash receipts

Include all a firm’s inflows of cash during a given financial period

Cash disbursements

Include all outlays of cash by the firm during a given financial period

Percent-of-sales method

A simple method for developing a pro forma income statement is

Judgmental approach

A better and more popular approach under which the firm estimates the values of certain balance sheet accounts and uses its external financing as a balancing, or “plug,” figure

Financial statements for the preceding year

First input required for preparing pro forma statement

Sales forecast for the coming year

2nd input required for preparing pro forma statement

Financial planning process

begins with long-term, or strategic, financial plans. These plans, in turn, guide the formulation of short-term, or operating, plans and budgets

Strategic financial plans

Long term plan is a

Short-term financial plans

These plans most often cover a 1- to 2-year period

Long-term financial plans

Part of an integrated strategy that, along with production and marketing plans, guides the firm toward strategic goals.

Sales Forecast

This prediction of the firm’s sales over a given period is ordinarily prepared by the marketing department

Cash Budget

is a statement of the firm’s planned inflows and outflows of cash. It is used by the firm to estimate its short-term cash requirements, with particular attention being paid to planning for surplus cash and for cash shortages

External Forecast

A sales forecast based on the relationships observed between the firm’s sales and certain key external economic indicators