Sales Forecasting and Financial Ratio Analysis

Flashcards covering sales forecasting formulas, financial ratio analysis (profitability, health, and liquidity), and the basic definition of value chain analysis.

Sales Forecast

An estimate of the number of goods and services a business believes it can sell over time, including production costs and estimated profit.

Markup

A calculation used to determine the additional amount added to the cost of a product; formula: $\text{Markup} = \text{Cost per unit} \times \text{Desired Markup}$.

Selling Price

The final price at which a product is sold to consumers; formula: $\text{Selling Price} = \text{Cost Per Unit} \times \text{Markup Price}$.

Projected Daily Revenue

The expected income generated from sales in a single day; formula: $\text{Projected Daily Revenue} = \text{Selling Price} \times \text{Volume of Items Sold}$.

Projected Items Sold Monthly

The estimated total number of units sold over a 30-day period; formula: $\text{Projected Items Sold Monthly} = \text{Items Sold Daily} \times 30\,\text{Days}$.

Projected Monthly Revenue

The expected total income generated from sales in one month; formula: $\text{Projected Monthly Revenue} = \text{Selling Price} \times \text{Projected Items Sold Monthly}$.

Projected Items Sold Annually

The estimated total number of units sold over a year; formula: $\text{Projected Items Sold Annually} = \text{Items Sold Monthly} \times 365\,\text{Days}$.

Projected Annual Revenue

The expected total income generated from sales over a full year; formula: $\text{Projected Annual Revenue} = \text{Selling Price} \times \text{Projected Items Sold Annually}$.

Ratio Analysis

The comparison of two numbers from a company's financial statements used to evaluate financial health or determine relationships between accounting data.

Profitability Ratio

A financial metric used to assess a company's ability to generate returns and net income relative to its revenue, assets, or equity.

Return on Investments (ROI)

Also known as return on equity (ROE), it compares profit after taxes to average stockholder's equity; formula: $\text{Return on Investment} = \text{Net Income} / (\text{Average Assets} / 2)$.

Average Asset

The value calculated by adding the beginning and ending balances of total assets and dividing by two.

Operating Income Ratio (OIR)

A ratio showing the percentage of profit generated from each peso of investment; formula: $\text{Operating Income Ratio} = (\text{Operating Expenses} + \text{Cost of goods sold}) / \text{Net Sales}$.

Return on Assets (ROA)

A measure of how effectively a company uses its assets to generate operating income; formula: $\text{Return on Assets} = \text{Operating Income} / \text{Average Total Assets}$.

Financial Health Ratio

A metric that determines a company's capacity to meet its short-term and long-term obligations as they become due.

Stockholder's Ratio

A measure of a firm's long-term financial stability based on the claims of stockholders; formula: $\text{Stockholder\u2019s Ratio} = \text{Total Equity} / \text{Total Assets}$.

Debt Ratio

A comparison of total debt to total assets used to understand how much debt a company utilizes; formula: $\text{Debt Ratio} = \text{Total Liabilities} / \text{Total Assets}$.

Debt-to-Equity Ratio

A ratio showing the proportion of a company's balance sheet financed by creditors versus shareholder investment; formula: $\text{Debt-to-Equity Ratio} = \text{Total Liabilities} / \text{Total Shareholder\u2019s Equity}$.

Liquidity Ratio

A financial metric used to determine an entrepreneur's or company's ability to pay off short-term obligations or liabilities.

Quick Ratio (Acid-Test Ratio)

A measure of short-term liquidity and the ability to meet obligations using only liquid assets; formula: $\text{Quick Ratio} = \text{Quick Assets} / \text{Current Liabilities}$.

Current Ratio

A comparison of current assets to current liabilities used to show a company's ability to pay short-term bills; formula: $\text{Current Ratio} = \text{Current Assets} / \text{Current Liabilities}$.

Value Chain

The representation of a firm's internal activities as it transforms various inputs into finished outputs.

Value Chain Analysis (VCA)

A process that involves identifying and analyzing the primary and support activities of a specific firm.