Forecasting is the prediction of future events. In the finance field, this usually means that an organization is attempting to predict its future sales. Financial Forecasting and Modeling discusses the different types of forecasting methodologies, the situations in which they should be used, and how to construct them. The course also examines the layout and formulation of a financial model, and addresses specific issues within such a model, including the treatment of depreciation, debt, equity, and working capital. Further, the course describes the construction of short-term and longer-term cash forecasts, concluding with a review of the Excel functions that can be used for financial forecasting and modeling.
Upon successful completion of this course, participants will be able to:
- Cite the characteristics of the Delphi method.
- Identify the best uses of the different forecasting methods.
- Note the situations in which a smoothing constant can be used.
- Identify the different types of leading and lagging indicators.
- State which report makes use of the accounting equation.
- Note how an income statement is used.
- Identify the key inputs to a financial model.
- Identify the complications caused by the use of a plug within a financial model.
- Note the circumstances under which a business could fund its own growth.
- Cite the cases in which an expansion of a financial model might be warranted.
- Note the sources of the receipts and disbursements method.
- Identify the duration periods for the different types of forecasts.
- Note why the results of an automated cash forecasting system may be incorrect.
- Identify the reliability levels of the different types of cash forecast information.
- State the reasoning behind the use of a cash forecast reconciliation.
- Note which Excel functions will fit straight and curved lines to the data.
- Identify the types of information provided by the different Excel functions relating to forecasting.
- Cite the inputs required for the different Excel functions relating to forecasting.
Table of Contents
Chapter 1 – Financial Forecasting
Uses for Forecasting
Implicit and Explicit Forecasts
Types of Forecasting Methods
Forecasting Method Selection Criteria
Simple Forecasting Methods
Prior Year Actuals × Adjustment Factor
Average of Multiple Prior Periods
Expected Unit Sales Basis
Spending per Customer
Change in Advance Bookings or Orders
The Rolling Forecast
Use of Leading and Lagging Indicators
Nature of Forecasting Model
Setting Forecast Boundaries
Detecting Cresting Sales
Evaluation of Forecasts
Responsibility for Forecasting
Chapter 1 – Review Questions
Chapter 2 – Financial Modeling
The Financial Statements
The Balance Sheet
The Income Statement
The Statement of Cash Flows
Interactions between the Financial Statements
The Nature of Financial Modeling
The Financial Modeling Process
Key Inputs to the Financial Model
Structure of the Financial Model
Fixed Asset and Depreciation Modeling
Other Assets Modeling
Debt Payable Modeling
Balancing the Model
Working Capital Projections for a Growing Business
Working Capital for a Declining Business
Sensitivity and Scenario Analysis
Incremental Modeling Analysis
Budgeting and Planning Software
Pro Forma Financial Statements
Responsibility for Modeling
Chapter 2 – Review Questions
Chapter 3 – Cash Forecasting
The Cash Forecast
The Short-Term Cash Forecast
The Medium-Term Cash Forecast
The Long-Term Cash Forecast
The Use of Averages
Automated Cash Forecasting
The Reliability of Cash Flow Information
The Impact of Special Events
The Foreign Currency Cash Forecast
Cash Forecast Reconciliation
Chapter 3 – Review Questions
Chapter 4 – Microsoft Excel Modeling
Moving Averages Function
Exponential Smoothing Function
Linear Trend Function
Polynomial Trend Function
Iterative Calculations Function
Chapter 4 – Review Questions
Review Question Answers and Rationales
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