Week 9: Discussion
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Explain how projected economic scenarios can be used to help forecast a firm’s sales growth rate.
What is the percent of sales forecasting method and what are some limitations of this methodology? Please provide 3 different limitations.
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first classmates post：
June 20, 2021
1. Explain how projected economic Scenario can be used To help forecast a firm’s growth Rate.
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2. What is the percent sales forecasting Method and what are some limitations Of this mythology? Please provide 3Different limitations.
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second classmates post：Hello Everyone,
Projected economic scenarios are useful in many ways, it can help forecast a firm’s sales growth in many ways. For example, a firm might choose to forecast future sales growth, by using different scenarios such as slow economic growth, average economic growth and rapid economic growth, a frim can forecast future sales and predict the outcome in those three different scenarios. This can also predict short term growth and long term growth. All this is possible if there are not unknown natural events that can interfere with this type of forecasting, one example of this is the current pandemic, it slowed down the whole economy and no one predicted it was coming, as a result of this, many business took losses that they were not expecting and many went out of business, in the other hand, retail and online companies saw an increase in sales. This method can forecast sales, income statement, balance sheet and statement of cash flows.
According to the e-text The percent-of-sales forecasting method projects account balances by assuming that most expenses and balance sheet items can be expressed as a percent of sales. (Leach J. C., & Melicher R. W. 2014). Some limitations of this methodology is that if the cost of goods sold the previous year were a certain amount, for example $200,000 dollars in sales, it is expect to remain the same for the current year which is $200,000 dollars in sales. If assets sales were 50 percent of sales last year, it is forecasted to be 50 percent of sales next year. It will also apply to balance sheets, if a cost of balance sheet item is expected to to remain the same as the percentage of sales from year to year and then it will grow at the same rate as sales.
Leach J. C., & Melicher R. W. (2014). Entrepreneurial Finance. [VitalSource Bookshelf]. Retrieved from https://online.vitalsource.com/#/books/9781305156180/
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Week 9: Discussion