Table of Contents

Chapter 1 - Financial Forecasting. 1

Uses for Forecasting. 1

Forecast Characteristics. 2

Implicit and Explicit Forecasts. 2

Types of Forecasting Methods. 3

Forecasting Method Selection Criteria. 5

Moving Averages. 6

Exponential Smoothing. 7

Regression Analysis. 8

Capture Ratios. 10

Simple Forecasting Methods. 10

Prior Year Actuals × Adjustment Factor. 11

Average of Multiple Prior Periods. 12

Expected Unit Sales Basis. 13

Spending per Customer. 15

Change in Advance Bookings or Orders. 16

The Rolling Forecast 17

Use of Leading and Lagging Indicators. 17

Forecasting Accuracy. 18

Uncertainty. 18

Historical Basis. 19

Update Frequency. 20

Use of Teams. 20

Nature of Forecasting Model 21

Planning Deviations. 21

Forecasting Traps. 21

Setting Forecast Boundaries. 22

Detecting Cresting Sales. 22

Evaluation of Forecasts. 25

Responsibility for Forecasting. 26

Chapter 2 - Financial Modeling. 29

The Financial Statements. 29

The Balance Sheet 29

The Income Statement 32

The Statement of Cash Flows. 34

Interactions between the Financial Statements. 37

The Nature of Financial Modeling. 37

The Financial Modeling Process. 38

Key Inputs to the Financial Model 40

Structure of the Financial Model 41

Variables Section. 41

Fixed Asset and Depreciation Modeling. 45

Other Assets Modeling. 47

Debt Payable Modeling. 47

Equity Modeling. 48

Balancing the Model 48

Covenant Monitoring. 48

Working Capital Projections for a Growing Business. 49

Working Capital for a Declining Business. 51

Sensitivity and Scenario Analysis. 51

Variables Sensitivity. 52

Scenario Analysis. 53

Excel Tools. 53

Incremental Modeling Analysis. 54

Budgeting and Planning Software. 57

Pro Forma Financial Statements. 57

Responsibility for Modeling. 57

Chapter 3 - Cash Forecasting. 60

The Cash Forecast 60

The Short-Term Cash Forecast 61

The Medium-Term Cash Forecast 64

The Long-Term Cash Forecast 65

The Use of Averages. 65

Automated Cash Forecasting. 66

The Reliability of Cash Flow Information. 67

The Impact of Special Events. 68

The Foreign Currency Cash Forecast 69

Cash Forecast Reconciliation. 69

Chapter 4 - Microsoft Excel Modeling. 72

Moving Averages Function. 72

Exponential Smoothing Function. 74

Linear Trend Function. 75

Polynomial Trend Function. 76

Regression Analysis. 78

Iterative Calculations Function. 80

Scenario Manager. 84

Answers to Course Questions. 91

Final Examination.....................................................................................................................................................102