From the course: Financial Analysis: Making Business Projections
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Volatility and the treatment of exceptional elements - Microsoft Excel Tutorial
From the course: Financial Analysis: Making Business Projections
Volatility and the treatment of exceptional elements
- When preparing a financial projection you will bump into two kinds of business elements. The ones that are stable and therefore easily predictable, and the ones that occur less often and for which it is more difficult to note when they will happen. In other terms, those business elements can be categorized based on their level of uncertainty, which is also called volatility. As you have probably guessed already, the more predictable things are better for our financial projection, because we know what will happen and when. For example, we know you and I are going to need a salary next month, so wages in general are very predictable, and as long as we know who is employed in the company, we know that we will have an expense every month for their salary On the other hand, some business activities are much less certain. For example, what is the probability of your company signing a contract that is ten times the size of your usual business? Probably very low because if it weren't, it…
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