please respond like you did last week asking questions and using references
Within business, working professionals should become comfortable receiving and giving constructive feedback. Critical analysis of topics, and providing and receiving constructive feedback, is important in ones professional growth and development and a core competency for leaders. You will be expected to read the initial posting of at least ONE peer or instructor, and then provide constructive criticism to their peers initial postings. You should highlight strengths as well as opportunities for improvement:
- Point out what you perceived to be the strengths of the initial posting along with supporting rationale.
- Identify specific opportunities for improvement with regard to the content in the initial posting. Furthermore, you should provide supporting rationale for your stated position, as well as concrete suggestions and guidance intended to strengthen the effectiveness of the content.
Each response should be a minimum of 250 words
Student 1 Heather
My initial thought on this summary of forecasting earnings is the approaches are all over the place, ranging from very broad methods to utilizing the minute details of the business. While I am sure the point was to give us a wide range to dissect, it is interesting to me that companies would choose to utilize methods from one end of the spectrum to the other.
An article from Business Growth Services details how companies use a forecast to predict future trends and data so management can be informed as to the future financial status of the company. The statements the article holds most important in showing how a company is performing in the past as well as how they will perform in the future are the Profit & Loss Statement, Balance Sheet, and Cash Flow. Utilizing these statements to create a forecast will line out where the business wants to go, how the business is doing currently, and provide answers to financial decisions such as how much capital will be needed for future projects to promote business growth. (Business Growth, 2019)
Another key point of a forecast is shown in an article from Reference for Business in which the forecast highlighted as being heavily used by company owners, management, and lenders or creditors. The owners or investors use the forecasts to determine the rate of return on and if they want to continue their investment in the company. The forecast also gives analysts a path regarding action such as buying, selling, or holding the investment. (Horwitz, 2022) Another path investors use the forecast on is regarding stock exchange. An article in Investopedia details how projections of a companys earnings from a forecast are critical in looking at the revenue and growth. This ultimately determines the stock price on the market. The analysts spend a great deal of time gathering the forecasts for potential companies to recommend for investment. This data gathered includes forecasted and previous financials and data from the company itself, the industry it is in, and consumers. (Zucchi, 2022)
With the information above regarding the value and utilization of forecasts, I would agree with assessing the macro environment and performing a Porter analysis. I believe this is beneficial as it is thorough and looking at the forecast from all angles, not just sales and profit. I also agree with a linear extrapolation as the historical data can assist greatly when looking forward on a forecast however, I dont think this approach should be used alone as it is not thorough enough to get a complete sense for how the company will perform in the future. For that reason, out of the approaches given, I would use a combination of the two mentioned above.
I feel the third option of breaking down the income and expense components would not be beneficial for work required and therefore would hold little value to the forecast earnings. I also feel looking into every moving part of the company utilizing quantitative and qualitative justifications is not worth the effort and too cumbersome a task for the results given.
Overall, as with many things discussed in this class, I feel the best approach is to go into a forecast with as much complete, detailed information as possible but be cautious of performing too much research and gathering too much information as it can overtake the goal. With a combination of a couple techniques, the forecast can be very helpful and as always the key is to continually review and tweak as needed.
Business Growth. (2019, November 22). Why is financial forecasting so critical to your business? Business Growth Services. Retrieved September 7, 2022, from https://www.businessgrowthservices.co/why-is-financial-forecasting-so-critical-for-your-business/ (Links to an external site.)
Horwitz, R. M. (2022). Earnings forecasts. Reference for Business. Retrieved September 7, 2022, from https://www.referenceforbusiness.com/encyclopedia/…
Zucchi, K. (2022, February 8). Stock analysis: Forecasting revenue and growth. Investopedia. Retrieved September 7, 2022, from https://www.investopedia.com/articles/active-trading/022315/stock-analysis-forecasting-revenue-and-growth.asp#:~:text=Stock%20analysts%20need%20to%20forecast,to%20a%20stock’s%20future%20worth.
Student 2 Carla
What are your thoughts on this summary of forecasting earnings?
Forecasting earnings predict earnings within an investment or company to see the most valuable option to increase wealth. The primary advantage of forecasting is that it provides the business with helpful information that it can use to make decisions about the organization’s future (Horwitz, 2022) . Financial forecasts allow you to make more informed business decisions based on facts and data, allowing the company or investor to evaluate and see if the investment will be profitable.
Why would we want to forecast a company’s earnings?
Because using the forecasting earnings is possible to project if the company will create or destroy value, along with analyzing the higher rate of return. Creating and implementing a budgeting forecasting process helps organizations establish more accurate financial reports and estimate sales growth and the prices companies can charge for the products (McClure, 2022).
How would managers and investors use this information?
The purpose of earning forecasts is to create a financial method to help the manager or investor support the decision considering the money value over a period and add value for the firm.
When investors consider buying stocks, they consider not only the current financials of the company but also the forecasting earnings (McClure, 2022). The quantitative, for instance, can provide them with past financial data, and based on the numbers, investors can decide if it is worth it investing or not.
Forecasting earnings analysts a deep look at the expected costs of running the business; with this information, managers can analyze if a certain change in the production or equipment purchase will be profitable for the company. For example.
A writer is planning to purchase software that allows her to write, design, and sell e-books. The software costs $100,000; perhaps she already spent $2,000 researching and testing other options. The capital cost is 15%, and she believes that she can sell 2.500 units within five years. With the variable cost of $50, she plans to sell a unit for $120. Within the five years, she will also have 1,500 dollars per year for updates.
The decision to buy the software will generate profit. The NPV is positive, which proves that she will have a net income, and the IRR and ROI are also positive, which shows that she will make approximately 478% of the project. The $2,000 she used for research are a sunk cost. Below are her forecasting earnings.
However, if her supplies/variable cost increases from $50 to $112, she will not have profit and will have a loss in the money she invested.
Which of these approaches do you agree with?
Although quantitative forecasting can be a little costly, it delivers a better result, for it is based on historical results. It relies on historical data and tries to model a complex and dynamic situation based on past results. It also attracts Stakeholders.
Which ones do you think would be of little value and why?
The qualitative method is based on judgment and subjective knowledge in forecasting, and it is information that can’t be measured. Some of the disadvantages of the qualitative approach are Errors in Judgment, unexpected Changes, and Bias (Pros & Cons of qualitative vs. quantitative demand forecasting methods, n.d).
Horwitz, R. M. (2022). Earnings forecasts. Reference for Business. https://www.referenceforbusiness.com/encyclopedia/Dev-Eco/Earnings-Forecasts.html (Links to an external site.)
McClure, B. (2022, July 13). Earnings forecasts: A Primer. Investopedia. https://www.investopedia.com/articles/stocks/06/ea…
Pros & Cons of qualitative vs. quantitative demand forecasting methods. Automated Sales Forecasting and Demand Planning. (n.d.) https://zipforecasting.com/en/forecasting-methods/quantitative-demand-forecasting.html (Links to an external site.)