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

2. 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

3. 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

4. Sales growth Macroeconomic forecasts
Konjunkturinstitutet / National institute of Economic research (NIER)
Macroeconomic aggregates
Output for industries for
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

5. 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

6. 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

7. 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

8. 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

9. 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)