In this video, the instructor briefly explains conventional methods of financial forecasting.
- [Instructor] We've talked a lot…about using regressions to make predictions.…But of course, predictions are nothing new in business.…So I want to spend a few minutes talking…about conventional financial forecasts…and how those are done just so you have a sense…for how that compares to newer methods…that use regressions and big data.…In particular, the percent of sales method…is probably the most common method…in business for making forecasts.…We begin with a sales forecast that's based…on an annual growth rate in revenue.…
We might, for example, expect that our sales…are going to grow 5% every year for the next five years.…We then use the balance sheet and the income statement…and change those proportionally with sales.…For a long term forecast, it's going to be built around…what we call a CAGR or compounded annual growth rate.…This is the traditional method that you'll see…at most companies out there,…but regression analysis is starting…to introduce new ideas into forecasting.…
Now within income statements,…
Join Professor Michael McDonald and discover how to use predictive analytics to forecast key performance indicators of interest, such as quarterly sales, projected cash flow, or even optimized product pricing. All you need is Microsoft Excel. Michael uses the built-in formulas, functions, and calculations to perform regression analysis, calculate confidence intervals, and stress test your results. You'll walk away from the course able to immediately begin creating forecasts for your own business needs.
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- List the two methods of making decisions.
- Identify the most common method of conventional financial forecasting.
- Describe common challenges that come when trying to merge data.
- Assess the types of questions that business intelligence is best suited to answer.
- Distinguish the statistic that is most useful for estimating the impact of an X variable on a Y variable.