Chap 15-Financial Planning and Forecasting

centered moving average

a moving average created to put a specific observation exactly in the center of the period over which the moving average is calculated

average approach

assuming that future sales will be equal to the average historical value across some relevant period

Naive Approach

assuming that future sales will be equal to the latest period's sales

MAPE

mean absolute percentage error, a measurement of a forecast's accuracy

Additional Funds Needed (AFN)

necessary increase in assets - spontaneous increase in liabilities - projected increase in retained earnings

capital intensity ratio

relevant assets divided by current sales

spontaneous liabilities ratio

relevant liabilities divided by current sales

infinitely divisible

the ability to divide a given amount into as small a portion as needed

Additional Funds Needed (AFN)

the amount of external financing a firm must seek in order to change the asset base as necessary to support a different level of sales

first order effects

the immediately observable effects of changing one item on another. Usually contrasted with higher order effects, which are the subsequent, less observable effects of the change

trade credit

the practice of one firm selling to another on credit terms

Strategic Planning

the process of determining where a firm is going over the next year or more, how it is going to get there, and how it will know if it gets there or not

Financial Planning

the process of mapping out the future cash inflows and outflows of the firm

base case projections

the projected financial statements associated with the base case

base case

the set of assumptions underlying the firm's financial plan

Deseasonalize

to remove the effects of seasonality from historical data