Forecasting Using Indices
QRB 501/Quantitative Reasoning for Business
March 4, 2012
Vinata Kulkarni, PhD
Forecasting using indices
Forecasting is an integral part of business. Forecasting allows investors to see anticipated growth/decline in a business. An accurate forecast will also allow a business to respond appropriately should a problem be evident in the desired business plan. Forecasting can be done on all data within a financial statement or can target specific areas, depending on the information desired. Investors as well as business executives have a need to see where a company is headed when making future business decisions.
The dictionary defines the word forecast as “to anticipate, calculate, or predict (some future event or condition) usually as a result of rational study and analysis of available pertinent data” (Merriam-Webster, Inc., 2002, para 2). One should review all data available for making an accurate business forecast. In ...view middle of the document...
10 billion |
Note. Table adapted from data provided by YCharts, copyright 2012.
Using the data above the method of forecasting was to take the average for each period and find the percentage of growth/decline. The percentage multiplied against the most recent year’s totals provided the forecast for year five’s anticipated inventory valuation. The forecast for year five is as follows:
| 2008 | 2009 | 2010 | 2011 | 2012 Forecast |
31-Jan | 1,100,000,000 | 867,000,000 | 1,050,000,000 | 1,300,000,000 | 1,402,851,546 |
30-Apr | 1,230,000,000 | 842,000,000 | 1,180,000,000 | 1,280,000,000 | 1,352,842,149 |
31-Jul | 1,100,000,000 | 839,000,000 | 1,370,000,000 | 1,350,000,000 | 1,521,461,267 |
31-Oct | 1,110,000,000 | 952,000,000 | 1,290,000,000 | 1,400,000,000 | 1,539,053,130 |
| | | | | |
Percentage of growth | | | | | Average |
31-Jan | | -21% | 21% | 24% | 8% |
30-Apr | | -32% | 40% | 8% | 6% |
31-Jul | | -24% | 63% | -1% | 13% |
31-Oct | | -14% | 36% | 9% | 10% |
Placing this data into a graph provides a better understanding of the company’s expected inventory levels. Dell, Inc. uses the just-in-time inventory system, which reflects little fluctuation in inventory values. The results were as expected, little fluctuation in inventory totals given the information obtained. A chart reflecting the anticipated growth is below.
The forecaster must obtain all data necessary to ensure accuracy. The possibility exists that outside factors influence some data concerning forecasting. Economic factors often play a role in the outcome of a business success. Forecasting is only as good as the data used. Proper forecasting impacts future growth potential in a business. Investors make decisions regarding providing a company with capital based on forecasting. Accurate forecasting models are a necessity for any business, regardless of size.
Merriam-Webster, Inc.. (2002). forecasting. Retrieved from http://www.mwu.eb.com.ezproxy.apollolibrary.com/mwu
YCharts. (2012). Dell historical inventories data. Retrieved from http://ycharts.com/companies/DELL/historical_data/inventories_net