Tishay Law Unit 2 FINA310 FINAL

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American InterContinental University *

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310

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Finance

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Feb 20, 2024

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Uploaded by ChefJellyfishMaster4675

1 Tishay Lawrence FINA310 Instructor: J Bruce Parker Date: December 9, 2023

1 Page 2: Introduction Why is forecasting important? Any business or organization needs to use forecasting because it facilitates planning and decision-making. It entails making predictions about upcoming occurrences, patterns, and results using data and analysis from the past. The power of forecasting to offer insightful information about the future allows companies to foresee changes and respond appropriately. First of all, forecasting assists companies in establishing reasonable targets and goals. Businesses can predict future demand for their goods and services by examining historical data and market trends. They can effectively allocate resources, plan production levels, and prevent inventory overstocking or understocking thanks to this information. Second, forecasting helps with budgeting and financial planning. Businesses can more accurately project their future revenues and expenses when they have accurate forecasts. For the purpose of making budgets, distributing money wisely, obtaining loans or investments, and guaranteeing financial stability, this information is crucial. Moreover, forecasting helps with risk management by pointing out prospective hazards or openings that might present themselves down the road. Through the use of forecasting techniques like trend analysis or regression models, organizations can proactively adjust their strategies to minimize risks or capitalize on emerging opportunities by anticipating changes in the market or customer preferences.

1 What is the percentage of sales method? In business, the percentage of sales method is a commonly employed technique for projecting future sales and figuring out the right budget for different expenses. With this approach, the future sales volume is estimated, and the associated costs are then computed as a percentage of the estimated sales. First, past data is examined to find patterns and trends in sales data. This data is essential for calculating the rate of increase or decrease in sales over time. Once established, these trends can be used to project possible sales for upcoming periods. Various costs, including marketing, production, and administrative expenses, are calculated as a percentage of the projected revenues once the projected sales figures have been established. For instance, if past data indicates that marketing expenses accounted for 20% of overall sales in prior years, the marketing budget can be computed by applying this percentage to the projected future revenue. This method's simplicity and ease of application are its advantages. Without engaging in intricate financial analysis, it enables businesses to quickly estimate their budget requirements based on expected revenue. It is crucial to remember that this approach assumes that previous trends will persist into the future, which may not always be true because of shifting market dynamics or other unanticipated circumstances. In summary, the percentage of sales technique offers companies an easy way to project their costs based on expected income. Despite its drawbacks, it is still a useful tool for budgeting and can assist businesses in making resource-related decisions.

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1 Page 3: Insert Forecast from Income Statement template: Total Revenue $ 106,005 $ 127,206 Cost of Revenue $ (74,963) $ 89,956 Gross Profit $ 31,042 $ 37,250 Operating Expenses $ (22,096) $ (26,515) Operating Income $ 8,946 $ 10,735 Net Interest Income $ (39) $ 741 Pre-Tax Income $ 8,907 $ 10,688 Provision for Income Tax (22%) $ (1,961) $ (2,392) Net Income $ 6,946 $ 8,336 1. The total revenue numbers over the past 5 years for Tag-It Corporation were as follows (values in millions): o 2018 72,710 = 0% o 2019 75,360 = 75,360/72,710 = 1.04% o 2020 78,112 = 78,112/75,360 =1.04% o 2021 93,561=93,561/78,112 = 1.2 o 0+1.04+1.04+1.2=3.28/4 = 0.82 = 82%

1 Page 4: Discuss whether the target can be reached based on previous years. Tag-it Corporation's overall revenue figures over the previous five years have increased steadily. The company's revenue climbed from $72,710 million in 2018 to $75,360 million in 2019. In 2020, the revenue increased even more to $78,112 million. Ultimately, Tag-it Corporation saw a notable rise in sales in 2021, bringing in a total of $93,561 million. It is logical to assume that Tag-it Corporation has the capacity to meet the goal of a 20% rise in sales the following year given the pattern of steady growth observed over the previous few years. The business has proven that it can produce yearly revenue increases, and between 2020 and 2021, it grew significantly. But it's crucial to take into account outside variables that could affect sales in the future. Consumer behavior and purchasing power can be strongly influenced by market trends and economic conditions. In addition, Tag-it's ability to meet its sales goal may be impacted by industry competition. Overall, even though Tag-it Corporation's total revenue figures show a consistent upward trend in recent years, the company still needs to evaluate the state of the market and put in place practical plans to make sure they can achieve their target of a 20% rise in sales the following year.

1 Conclusion: In conclusion, assisting businesses with their long-term planning is a major benefit of forecasting. Businesses can forecast changes in demand and modify their production in response by examining historical sales data and industry developments. This enables them to efficiently meet customer expectations, optimize inventory levels, and cut costs. Furthermore, by identifying possible risks or opportunities ahead of time, accurate forecasting empowers businesses to take proactive measures. Economic planning also heavily relies on forecasting. Economic forecasts are used by governments to guide policy decisions about trade regulations, interest rates, taxes, and spending. These projections assist decision-makers in understanding how their actions will affect different economic sectors and ensuring stability.

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1 REFERENCES Nybro, P. (2022) Unit 2 chat. AIUOnline.edu . Retrieved from “ Unit 2 - Live Chat - Forecasting - Zoom ” Knight, D. (2022). Principles of Finance . OpenStax. https://aiu.vitalsource.com/books/9781951693541 Tuovila, A. (2023, May 27). Forecasting: what it is, how it’s used in business and investing . Investopedia. https://www.investopedia.com/terms/f/forecasting.asp