3.3

Question 1

sales forecasting

Answer 1

prediiting future sales volume/revenue based on past sales data and market research

Question 2

how does sales forcasting help the finance function

Answer 2

helps to produce cash flow forecasts to help identify if more finance is needed

Question 3

how does sales forcasting help the marketing function

Answer 3

marketing department knows periods that sales are predicted low, socan plan on how to increase

Question 4

how does sales forcasting help the operations function

Answer 4

know amont of people needed to produce stock

Question 5

how does sales forcasting help the HR function

Answer 5

understand that high volume may cause stress and absenteeism

Question 6

Time series data

Answer 6

Sales figures that have been collected at consistent time intervals and presented in time order.

Question 7

Advantages of scatter graphs to find correlations

Answer 7

• can identify if 2 two variables could be correlated
• if data suggests strong correlation, marketing predictions can be used to make sales forecasts

Question 8

Disadvanteges of scatter graphs to find correlations

Answer 8

• weak correlations or non correlation makes it hard to forecast sales
• even though a correlation is identified it doesnt necessarily mean theres a casual link between the two.

Question 9

Extrapolation

Answer 9

Using trends in past sales data to forecast future sales

Question 10

Advanatages of extrapolation

Answer 10

Useful in stable environments where the size of the market or number of competitors are unlikely to change

Question 11

Disadvantages of extrapolation

Answer 11

Past performance does not gurantee sales performance will continue in the future

Question 12

how to calculate payback

Answer 12

Calculate annual net cash flow of project (inflows - outflows)

Calculate the cumulative net cash flow
(net cash flow of previous year + net cash flow of year)

Identify the year pay back was achieved
(cumulative cash flow of last negative year / net cash flow of positive year after that x 12)

Question 13

advantages of pay back

Answer 13

• Quick and simple
• good for business with cash flow problems
• good for businesses whose equipment may become obsolete

Question 14

Disadvantages of Payback

Answer 14

• Ignores overall profit generated
• ignores the timings of receipts
• Not always accurate

Question 15

What is Payback

Answer 15

The length of time it takes to pay back the initial cost of an investment

Question 16

Average Rate of return

Answer 16

How much of the investment cost is returned as annual profit

Question 17

How to calculate ARR

Answer 17

• Calculate overall profit from investment by adding up all net cash flows (same as final cumulative cash flow)
• Calculate average annual profit by dividing overall profit by number of years which investment generates a return
• annual average profit/ initial investment x 100

Question 18

Advantages of ARR

Answer 18

• focuses on the overall profitability of an invesment
• can be compared to other forms of investment

Question 19

Disadvantages of ARR

Answer 19

• doesn’t take into account timings of the cash flow
• doesn’t take into account the effect of receiving money in the future has on the value of money

Question 20

Net present value

Answer 20

How much the profit is worth in the future years

Question 21

How to calculate net present value

Answer 21

(Net cash flow year 1 x discount factor) + (Net cash flow year 2 x discount factor)….. Minus Initial cost

Question 22

Advantages of NPV

Answer 22

• simple to interpret (positive = go ahead , negative = reject)
• takes into consideration the time value of money

Question 23

Disadvantages of NPV

Answer 23

• ignores the speed of repayment of the original investment
• difficult to choose correct discount factor
• can be difficult to understand

Question 24

Decision Trees

Answer 24

Mathematical models representing the likely outcomes for a business of a number of courses of action, showing the financial consequences of each

Question 25

Descision trees expected values

Answer 25

(Outcome 1 x Probability) + (Outcome 2 x Probability).....

Question 26

Descision Trees Net gain

Answer 26

Expected Value - Cost

Question 27

Advantages of Decision Trees

Answer 27

- Makes managers think about different options and consequences that may not have been considered before - Less rushed descision making process - Quantifys cost, benefit and probability - Provide logical comparison of options to managers

Question 28

Disadvantages of decision trees

Answer 28

- Only include financial and quantitative data - Use estimates for probability and financial consequences for each outcome - The range of possible outcomes not always clear

Question 29

Critical Path Analysis

Answer 29

Identifys the most efficient and cost effective way of completing a complex project

Question 30

CPA requires a business to

Answer 30

- identify all key activities that make up the project - Identify order in which they must occur in order to get the plan implemented - estimate duration of each activity

Question 31

CPA earliest start time

Answer 31

Earliest start time of preceding activity + duration of preceding activity

Question 32

CPA latest finish time

Answer 32

Latest finish time of the following activity – the duration of that activity

Question 33

CPA float time

Answer 33

Latest Finish Time – Activity length – Earliest Start Time

Question 34

Benefits of CPA

Answer 34

- helps reduce risk and costs of complex projects - encourages careful assessment of the requirements of each activity in a project - helps spot which activities have some float and could therefore transfer some resources

Question 35

Drawbacks of CPA

Answer 35

- reliability of CPA largely based on accurate estimates and assumptions made - doesn’t guarantee success - recourses may not be flexible as management hopes