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# Forecasting Using Indices Essay

612 words - 3 pages

Forecasting Using Indices
Tricia Thedford
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 |

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.
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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.

References

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