3.3 Flashcards
(24 cards)
quantitative sales forecasting
estimation of future sales figures using past data
QSF - moving averages
- averages calculated from successive series of data
- smooth data, trends easily followed
QSF - extrapolation
- prediction of future sales from past data
- extending line of best fit
QSF - correlation
- link between 2 varaibles
- positive or negative
calculating moving average
- calculate moving total, then centered average
- moving total = adding together sales figures for specified number of periods
- centred average = dividing moving total by specified number of periods
usefullness of QSF
- when the future is expected to reflect past
- in short term
- can plan resources
- produce budgets
limitations of QSF
- seasonality
- competition
- publicity
- market changes
- law changes
investment appraisal
comparing the expected future cash flows of an investment with initial cost for that investment
- requires time and experience
simple payback period
the amount of time it is expected for an investment to pay itself back
payback - benefits
- simple
- useful for cash flow management
- identify point of payback, positive cash flow contribution
- helpful when upgrading
payback - drawbacks
- no insight into profitability of investments
- only considers total length of time to recover investment
- no future values considered
- short-termism approach
- investments may be dismissed if they take too long to payback
average rate of return
compares average profit per year by an investment with value of intitial outlay
ARR - advantages
- considers all of the net cash flows generated over time
- easy to understand and compare percentage returns with eachother
ARR - disadvantages
- ignores timing of cash flows
- opportunity cost ignores as values arent truly expressed
net present value
- financial metric uysed to evaluate value of an investment of a project
- takes into account effects of interests rates and time
- represents present value of future inflows and outflows
NPV - advantages
- considers opportunity cost of money
- discount tables used to calculate forecast future values of net cashflows
- businesses may choose different discount tables to adjust to the level of risk involved in a project, allowing a rage of scenarios to be considered
NPV - disadvantages
- complicated to calculate
- cant accurately forecast
- selecting appropriate discount rate can be challenging
- only considers financial costs
limitations of investment appraisal techniques
- forecasted cash flows lack accuracy
- those compiling cash flows may lack experience or be biased, making imprecisions
- external shocks
- factors aside from cost of investment and return on investment arent considered
decision trees
- quantitative method of tracing outcomes of a decision so the most profitable one is selected
decision tree advantages
- reveal options that havent yet been considered
- managers forced to consider risks
- requres deep research
decision tree limitations
- requires skill that avoids bias and takes time
- uses estimates
- HR not considered, may affect profitability
- time lag
critical path analysis
- project management tool that uses network analysis to plan complex and time sensitive projects
- shows order of activities, start and finish without delay, shortest time to complete project
limitations of CPA
- lengthy and involves large number of activities, specialists may be required
- relies on estimates, heavy research required
- doesnt guarantee success
-may not be flexible
