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Forecasting

Forecasting. Purpose. A financial forecast is an estimate of future financial outcomes for a  company

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Forecasting

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  1. Forecasting

  2. Purpose • A financial forecast is an estimate of future financial outcomes for a company • Using historical internal accounting and sales data, in addition to external market and economic indicators, a financial forecast is an economist's best guess of what will happen to a company in financial terms over a given time period

  3. Variables • Assumptions: • Sales growth • Terminal sales growth • Depreciation rate • Interest rate on debt • Interest earned on cash balances • Tax rate • Repayment of debt • Addition of debt • Current year’s income statement and balance sheet data

  4. Assumptions • Based on past or current year financial statements • Sales growth can be taken as an average of past years and terminal sales growth is an estimation of the company’s perceived future growth • Some economic factors such as the interest on debt, interest earned on cash, tax rate and dividend payout rate are assumed on behalf of the company

  5. Current assets to sales, current liabilities to sales, net fixed assets to sales, and cost of goods to sales are calculated automatically as the user inputs current year financial statement data. All other assumptions must be inputted at the discretion of the user, taking into account all relevant information.

  6. Addition of Debt • A company’s plan to pay off its debt or acquire new debt in the following years • Need to be inputted by the user based on repaying debt or adding on debt in any given year

  7. Sales Growth • Increase sales for a more optimistic point of view or decrease them for a more pessimistic point of view as well as changing around the payment plan of debt • Using the buttons to the right of each sales growth assumption, user can increase or decrease the percentage

  8. Terminal Value • Representation of the present value of a future point of time of all the cash flows when the company expects a stable growth forever

  9. WACC will be taken from the first section of the Forecasting module. Year T+10 and terminal value year 15, will be inputted automatically as all relevant information is inputted by user. Growth rate must be inputted at the discretion of the user.

  10. Enterprise Value • Provides a good understanding of a company’s overall value

  11. All cells in this particular section of the module shall be calculated automatically as all other information in other parts of this module are entered and calculated.

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