The Thoughtful Forecaster

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The Thoughtful Forecaster

A Summary Submitted to
Dr. Roy Patin,
Professor of Finance

Submitted by
Faye d’Hamecourt

In Partial Fulfillment of the Requirements for
Financial Administration
FINC 5713-70

Midwestern State University
Dillard College of Business Administration
Fall 2011

Date Submitted
August 31, 2011

Forecasting is an important aspect in today's business world. Every day businesses strive or lose, depending on the successfulness and accurateness of their forecasting. For successful forecasting, the forecaster needs to have a clear understanding of the current business activities, past trends, and the company’s business strategy. Case 5 exhibits key principles on the way financial forecasting is done. Understanding the Financial Relationships of the Business Enterprise

Forecasters use current information to predict the future business activities of the company. This information is found on the financial statements of the company. For example, the balance sheet provides a snapshot of the business’ assets, liabilities and equity at a specific point in time, whereas the incomes statement provides a view of the flow of costs during a specific time frame. Financial ratios measure the relationships between various items on the financial statements. By comparing various ratios with those of previous years, trends can be identified. Because many financial ratios tend to be perserved over time, these ratios are very valuable for the forcaster. The forecaster can estimate only one financial statement line item and, by applying this number to the various ratios, he can make a complete forecast. Grounding Business Forecasts in the Reality of the Industry and Macroenvironment

An accurate forecast is made by recognizing not only internal data, but also external data. The environment a business operates in has a great impact on the future state of any business. A good forecast is made on the basis of economy and industry conditions. As...
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