Prospective Analysis

Developing
pro forma financial statements and cash flow forecasts depends heavily
upon sales forecasts. Imagine you are a financial analyst working for a
major stockbroker, and you are trying to develop a one-year sales
forecast for a major national department store. List five pieces of information you want to obtain to aid you in your forecast, and explain why they will aid you in your forecast.

Now
that you have made your best prediction of next year’s sales, you will
want to estimate next year’s cost of goods sold. Pick two pieces of information you definitely want to obtain in order to help you with this task, and explain why they will be helpful.

Just do response each posted # 1 to 3 only down below.

Posted 1

Good morning class,

When making sales forecasts, it’s important to have detailed
information about a company. For starters, an analyst would want to know
how a firm performed in previous years, as a company’s past performance
is indicative of future performance. He should also like to have data
about similar companies: by having this he is better able to judge his
company’s performance. Additionally, he needs macroeconomic data to
contextualize his company’s past performance and anticipate the economic
conditions for the future year. Information on marketing, and its
correlation with sales, would also be useful. Lastly, the analysts
should like to have additional information on how the supply and demand
for his company’s product(s) is expected to change in the coming year.

Two useful pieces of information for estimating COGS would be (1)
previous COGS and (2) how much inventory (in terms of quantity) the
company plans to purchase. Both data points are necessary for
forecasting future costs.

Posted 2

When predicting the future sales forecast it is important to consider
these five things in order to most accurately depict what is to come.
One item would be the economy of which your company is participating in
and the the health of the market. The conditions will show the amount of
money being traded by consumers in the market and if the market will be
sustained or in decline. The next item would be the sales returns in
allowances that shows the companies ability to maintain a sale. The next
would direct cost as this shows the amount of cost related to the sales
to determine part of the gross margin that helps in determining
financial standing. Another would be demand sustainability as if the
company can maintain the demand of the product or if they are over
producing causing a stagnate inventory this could also be looked at
through the inventory turnover. Lastly look in the selling price per
unit to depict the potential money to be made of each sale and the price
compared to the market. To determine the potential COGS you first have
to look into historical data that will have a percentage to base the
potential of future cost. Another factor would be to look an inventory
and fluctuation of the cost of the raw materials that make up the
material. As the industry and the economy change the cost will
fluctuate.

Posted 3

Ff I was a financial analyst, in order to better forecast the sales of

next year, I would want to obtain data on competitors within the

industry, economic conditions, historical data, the company’s budget,

and different trends in sales. Obtaining data regarding competitors will

help in comparing one company to the other; possibly using one as a

benchmark. Monitoring economic conditions will allow a company to see

any increases or decreases in supply and demand as well as other

circumstances such as interest rates and more. Historical data is

probably the first source in forecasting. This is concrete data that is

readily available and describes the past. Knowing the company’s budget

and what they can spend determines what they are capable of (to an

extent) in the future. Lastly, looking at trends in sales can put a

company in a better position to project future sales. They can look at

the percentage increases or decreases that have happened in the past.

In order to predict next year’s cost of goods sold, the pieces of
information that I would want are manufacturing costs as well as salary
and wages. Some employees may get raises so knowing this information can
help in estimating cost of goods sold. Additionally, being familiar
with manufacturing costs or how much the manufacturer is going to raise
or lower prices is a good determinant in accurate forecasting. Knowing
this type of information will better suite management in forecasting the
future.