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Comprehensive Forecasting Techniques for Financial Projections

Learn the methods and key drivers for comprehensive forecasting involving sales, profit margin, and financial statements. Explore forecasting techniques, performance analysis, and sensitivity analysis for accurate projections.

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Comprehensive Forecasting Techniques for Financial Projections

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  1. CH.6PROSPECTIVE ANALYSIS: FORECASTING

  2. The Techniques of Forecasting • The Overall Structure of Forecasts • Do it comprehensively • Involve many forecasts • Key “drivers”: sales, profit margin • Focus on projecting “condensed” financial statements

  3. The Techniques of Forecasting (Cont’d) • Getting started: Points of Departure • Last year performance, last year performance adjusted with recent trends, average performance over several prior years • The behavior of sales growth: mean reverting • The behavior of earnings: random walk • The behavior of ROE: mean reverting • The behavior of components of ROE • Operating asset turnover, net financial leverage: stable • NOPAT margin and spread: most variable

  4. Making Forecasts • Table 6-1: forecasting assumptions • Table 6-2: forecasted income statements and balance sheet

  5. Sensitivity Analysis • Seasonality and Interim Forecasts • Can not focus only on performance of the most recent quarter, but also the performance of the comparable quarter of the prior year

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