Short-term forecasting

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Presentation transcript:

Short-term forecasting Lecture 5 Sales Operating profitability Lecture 6 Financial performance Total profitability and end-of-period financial structure

Sales forecasting For each of the real segments of the company Forecast sales growth Derive sales For the quasi-segment “Other and eliminations” Forecast proportion of sales in relation to total of other segments For the company as a whole Derive total sales and sales growth

Sales growth Quantitative methods Extrapolating historical figures Average, which kind? Trend analysis. Will the trend continue? Assuming relationship to other variables, of which there are public forecasts Qualitative methods Base forecast on knowledge of company, industry and national economy or economies

Sales growth Macroeconomic forecasts Konjunkturinstitutet / National institute of Economic research (NIER) Macroeconomic aggregates 2008-10 Output for industries for 2008-10 OECD Macroeconomic aggregates for each country Gross domestic product (GDP), private consumption expenditure, private non-residential fixed capital formation, private residential fixed capital formation etc. Links to excel sheets, which you can use for your own calculations

Sales growth Accounting figures are in nominal (not real) terms, because we do not have inflation accounting That applies to our forecasts as well, and must be considered when using the macroeconomic forecasts greal = real growth rate (“constant prices”) i = inflation (rate of change of price index) gnom = nominal growth rate (“current prices”) gnom = (1+greal) x (1+i) – 1 greal = (1+gnom) / (1+i) - 1

Sales growth Combine the macroeconomic forecasts with The historical sales growth of the company (including the first two quarters of 2008) Qualitative information in the annual reports and the interim report for the first two quarters of 2008 Qualitative information in the business press

Core profit margin (PM) Take into account the effect of fixed costs, if that seems warranted by the historical figures, especially for companies where Sales are heavily dependent on the business cycle A high proportion of fixed costs from a few dominating assets E.g. paper machines in the forest industry At the top of the business cycle High capacity utilization, i.e. low fixed costs per unit and vice versa

Asset turnover (ATO) Forecast for the whole company (since you haven’t distributed NOA among segments) Procedure corresponding to e.g. segment Construction in 4.2.2 Do not forecast for 2008 Forecast for 2009 and 2010 Trend Possible assumption of capital rationalization Mixing effect because of different sales growth of segments with different ATO

Net operating assets (NOA) Year 2008 ATOt = St / NOAt-1 (i.e. ATO is not forecasted) NOAt = St+1 / ATOt+1 Year 2009 Year 2010 NOAt cannot be forecasted (yet)