How costs and revenue are forecast Flashcards
9.1 The principles of finance (9 cards)
What is Forecasting?
The process of prediction costs and revenue of a business
How does Forecasting help a business?
It helps a business to set goals and make plans and decisions about growth. It also helps to assess expenses and predict any profits or potential losses.
How do you forecats costs and revenue?
a Business’ predicted financial performance over a speific time period is projected by analysing historical data, market trends and economic indicators.
What are the methods used to forecast costs and revenue?
- Bottom-up
- Straight line
- Moving average
- Simple linear regression
- Mulitple linear regression
Bottom-Up?
a way of predicting future business perofrmance by beginning with the lowest level of data from the business, whihc is broken down and forescast for each item of data is made. This is then worked ‘upwards’ by adding all the different forecasted results to create an overall revenue forecast for the business.
Straight line?
Used when a company’s growth rate is constant. It gives a straightforward view of continued growth at the same rate and involves only basic maths and historical data.
Moving Average?
Reflects the previous price of movement of an asset. THe data is used by analysts or investors to forecast the guture direction of that asset price. It indicates the direction of a given trend after the price action of the underlying asset.
Multiple Linear Regression?
This uses numerous predictors and gauges the influence of each on the dependent variable. It extends the simple linear regression model by incorporating multople coefficients, one for each variable. This allows for a multi-dimensiable analysis of data.
Simple Leinear Regression?
This shows how one varibale (dependent variable) changes in response to changes in another variable (the independnt variable).
