How to build a real forecast in a company. Profit forecasting based on factorial model
Each investor, starting his business, first of all, wants to predict his income in the future, so he is faced with the need to draw up a sales budget. At this stage, difficulties begin, since not every beginner has enough knowledge in this area. In fact, everything is much simpler than it might seem. In this article, we will tell you about the most simple ways compilation and consider ways to calculate revenue.
Revenue Calculation Options
It is important to note that the article will focus on revenue, and not, it is worth distinguishing between these two concepts.
It is also important to clarify what a sales budget is - this is the name of a reasonable calculation of future income, which is compiled by periods, taking into account the following parameters:
- Actual information on sales in previous periods;
- Generalized statistics.
How to Calculate Revenue with Actual Sales Data
In other words, it all depends on what information you have. In the first case, if you are not the first month on the market and you have real sales data that you received in previous sales periods, you can calculate revenue as follows.
To forecast revenue for new period, it is not enough for you to multiply the previous one by two. You should proceed from the planned level of income that you wish to receive. The required figure should consist of all the necessary quantities and expenses that ensure the payback of your business. In addition, this figure includes the actual growth rate, which should be slightly inflated so that you have a target level to strive for.
All of the above indicators should make up the format figure. Let's take 1.40 as an example, where 1 is the base value (i.e., the amount earned in the previous period) and 0.40 is the overall ratio, or percentage, which indicates how much you should increase your sales.
Revenue Calculation Formula with actual sales data
Some significant factors must be taken into account in order to calculate revenue. We list the factors with the indicated examples of approximate values:
- Growth in the cost of transport costs - 4% per year;
- Increase in purchase prices for goods - 5% per year;
- Inflation rate - 17% per year;
- The planned percentage of profitability is 25% per year;
- Usage costs loan funds- 20% per year.
Each of the proposed values must be calculated with a percentage of the ratio, and in the end we will get 4 + 5 + 17 + 25 + 20 \u003d 71%. This figure shows the overall growth rate. After adding one to it, multiply the actual value of the revenue received in the previous period, say, for a year. Thus, we get the formula: planned revenue for next year= revenue for last year× 1.71. Thus, you calculated the planned revenue for the year, dividing it by 12 will get the result for the month.
How to calculate revenue without actual data
If you're just starting your business and don't have actual sales data yet, how do you calculate revenue? You have neither information nor data, you can only rely on existing statistics.
First of all, you should determine what your target audience will be, that is, who and where will buy your products. You need to get information about the population of the city in which you plan to do business, and determine the approximate number of people who will purchase your product daily.
You can find this information on the Internet or conduct market research. Once you have the numbers you need, you should calculate three possible options outcome - good, average and minimum implementation of the product. At the same time, the minimum plan should provide you with break-even. In turn, the average good plan implementation is done on the basis of a minimum implementation, which is increased by about 2-3 times, or taking into account certain factors affecting the implementation.
You can calculate the target revenue using the above formula in order to achieve the generally accepted standard rate of return, which is 20%. You can take the same values, but instead of last year's revenue, now substitute the minimum plan for the year. Do not overestimate or underestimate the calculated indicators, otherwise you will not be able to estimate a more or less exact amount of your future profit.
The most important issue of managing the process of profit formation is the planning of profit and other financial results, taking into account the conclusions economic analysis. main goal when planning is the maximization of income, which allows you to provide financing for a larger amount of the needs of the enterprise in its development. In this case, it is important to proceed from the value net profit. The task of maximizing the net profit of an enterprise is closely related to optimizing the amount of taxes paid within the framework of the current legislation, and preventing unproductive payments.
Profit planning - component financial planning and an important area of financial and economic work at the enterprise. Profit planning is carried out separately for all types of enterprise activities. Not only does this make planning easier, but it also matters for the expected amount of income tax, since some activities are not subject to income tax, while others are taxed at higher rates. In the process of developing plans for profit, it is important not only to take into account all the factors affecting the magnitude of possible financial results, but also, having considered the options for the production program, to choose the one that provides the maximum profit.
In the process of developing profit forecasts, the following methods can be used:
Method for determining return on invested capital,
Technical and economic calculations (normative),
Settlement and analytical,
direct account,
Economic and statistical (moving average method, simple regression equation, double average method, extreme points method, production function, logarithmic),
Economic and mathematical (multiple correlation-regression model),
Method of optimization models,
A method based on the use of marginal income in calculations.
At the heart of any of the above methods of profit planning is the relationship between profit, sales volume and distribution costs. The calculation of the rate of return on invested capital is based on the relationship between the turnover of productive capital and return on sales. The amount of profit (minimum, maximum, required) as an objective function depends on the strategy chosen by the enterprise.
As market relations develop, the main forecasting method becomes the method of ensuring an appropriate return on invested capital. When forecasting using this method, the problem of maintaining the achieved level of return on invested capital and increasing it (if this is provided for by the adopted strategy) is solved. The means to increase the level of profitability on invested capital can be an increase in the volume of sales of goods due to the commissioning of additional retail space, finding additional sources of commodity resources, accelerating the turnover, providing additional services, reasonable tactics in the field of pricing and management of financial resources, and reducing distribution costs.
The initial data for forecasting profits using this method are: information on the amount of invested capital (according to the latest balance sheet data); the projected level of return on invested capital, the staffing table for the enterprise, the projected values of the payroll fund, all costs and material costs, current tax rates, etc.
When determining the minimum or required amount of profit as a target function, the enterprise proceeds from the forecast value of its capital: forecasts of the interest rate of banks and the rate of return on capital (average return on capital).
The predicted amount of capital depends on its composition and factors (sources) that contribute to its growth (decrease). These can be bank loans, the issuance of bonds and their value, the sale of shares and their price, the rate of inflation.
The amount of necessary profit at the level of self-financing is determined based on the needs of the enterprise in financing measures for its production and social development, fulfillment of obligations to the state and the creation of appropriate funds (risk, reserve, fund for paying dividends, etc.).
The need of the enterprise for resources to finance activities related to production and social development enterprises are defined as follows.
First, the share of all taxes and obligatory payments from profit in its total value is determined, which has developed in the reporting period. In cases where the taxation procedure changes in the planning period, the amount of taxes must be clarified taking into account these changes. Then the amount of necessary profit (Mon) is calculated to meet the needs of the enterprise in financial resources and the creation of appropriate funds:
Mon \u003d (K x NPK) / (100 - Sp) (4)
where Sp is the average level of taxes and obligatory payments as a percentage of the balance sheet profit, K is the capital of the enterprise, rubles, NPK is the rate of return on capital, %.
The calculation of the break-even point (self-sufficiency), the point of critical sales volume, and the self-financing ratio is of great help in in-depth understanding of the essence and quantification of the target profit, in choosing the optimal planned solution for profit and profitability.
The optimal target profit is such a value of profit that implies full and effective financing of all its on-farm needs for funds and allows, with stable rates of deductions from profit, to participate in the formation of incomes of the state and local budgets.
Profit underpinning trade allowance, in terms of its safety margins, it should be sufficient for 2-3 years in advance to compensate for the need for capital investments (taking into account the depreciation fund), replenish the growth of own working capital, and form appropriate funds.
The method of direct counting is used, as a rule, with a small assortment of products. Its essence lies in the fact that profit is defined as the difference between the proceeds from the sale of products (net of taxes on proceeds) at the appropriate prices and its full cost of sales.
The direct counting method is simple and accessible, but it does not reveal the impact individual factors on the planned profit, and with a large range of products, it is very laborious.
The analytical method of profit formation is used with a large assortment of products. The advantage of this method is that it allows you to determine the influence of individual factors on the planned profit. With the analytical method, profit is determined not for each type of product manufactured in the coming year, but for all comparable products as a whole. The calculation of profit by the analytical method includes the following steps:
Determination of the base level of profitability as a quotient of dividing the profit of the reporting year by the full cost of comparable marketable products of the same period,
Calculation of the volume of marketable products in the planning period at the cost of the reporting year and determination of profit on marketable products, based on the basic level of profitability,
Accounting for the impact on planned profit various factors: reducing (increasing) the cost of comparable products, improving its quality and grade, changing the assortment, prices, etc.,
Determining the profit of the planned year, taking into account the influence of one factor - changes in the volume of comparable marketable products - based on the basic level of profitability and the planned volume of marketable products at the cost of the reporting year,
Assessment of the impact on the planned profit of changes in the cost, prices, assortment, grade, on the basis of which the planned profit and the planned level of profitability are adjusted. When forming a profit, it is also necessary to take into account the profit that can be received from the sale of the balance of finished products in the warehouse, the profit in goods shipped.
To generate profit from other sales, from non-sales operations, you can use both traditional and special methods(expert, statistical, economic and mathematical, etc.).
One of the most effective tools for managing operating profit is marginal analysis, which is based on studying the relationship between three groups of the most important economic indicators: costs - volume of production (sales) of products - profits, and predicting the value of each of these indicators with a given value of others. On the basis of marginal analysis, various methods of generating profit from sales are based. One of these methods is the profit generation method based on CVP - analysis (analysis of the relationship between costs, sales volume and profit), which allows you to identify the role of individual factors in the formation of profit from sales and ensure effective management of this process at the enterprise. This method is based on a comparison of revenue from the sale of products with the total amount of costs, subdivided depending on their response to changes in production volume into variable and fixed costs.
Margin analysis methods are used to:
Calculation of the break-even point and profit planning according to the ratio "costs-output-profit" (costs-volume-profit),
Profit planning based on the effect of operating leverage (lever),
Profit planning based on marginal (additional) costs and marginal revenue.
The balance method of planning is characterized by the establishment of material and cost proportions in indicators. The method involves the use of mutually balanced calculations (tables), in one part of which resources are indicated, and in the other - the directions of their use. The correct definition of resources will mean a reasonable direction of their use according to existing needs. In planning, such balances are often used as: a) natural (material); b) cost; c) labor; d) intersectoral, etc. Thus, the company's turnover plan necessarily requires the calculation of its commodity supply plan, which is carried out using the balance method, and the balance of cash income and expenses of the population of the region - determining the sources of their receipt of funds and directions for their expenditure, which is also performed using the balance method .
The experimental-statistical planning method is characterized by orientations to the results actually achieved in the past, by extrapolation of which the plan of the desired indicator is determined. This planning method is quite simple, but it has significant drawbacks: the target indicator calculated in this way reflects the current level of work with its underutilized reserves and errors in the past.
Normative method of planning (or method of technical and economic calculations ) uses regulations and norms. The method of technical and economic calculations can be used in three versions. According to the first, the calculation of gross income for the planned period is based on the predicted structure of trade and the current norms of trade allowances.
According to another option, the predicted value of gross income is determined by direct calculation of the profitability of each source of receipt of goods, each concluded supply agreement, taking into account the links in the movement of goods, the influence of the main factors. The total volume of gross income is calculated as the sum of the gross income that can be received by a trading enterprise from the sale of goods under all concluded contracts, all possible sources of receipt of goods and from the action of each factor separately.
Gross income by this method is also calculated by multiplying the volume of retail turnover by the average level of gross income achieved in the previous period, if this satisfies the goals of the enterprise.
The most easy-to-use calculation and analytical method for forecasting gross income. Its essence lies in the fact that on the basis of reporting data for the past period of the current year and a study of the dynamics of the level of gross income for the two previous years, the expected level of gross income for the current year is determined. This expected level of gross income is taken as the base value for forecasting the amount of gross income.
Among the economic and statistical methods, the moving average method is most widely used for forecasting purposes. The essence of the method is to equalize the level of gross income using the moving average method of a dynamic series (4-5 years) and spread the identified trend in the development of gross income for the future.
The calculation of gross income using economic and mathematical methods involves the solution of a multifactorial model using a computer.
With relatively stable prices and projected business conditions, profit is planned for a year within the current financial plan. The current situation makes annual planning extremely difficult, and enterprises can make more or less realistic profit plans by quarter. Since, since 1993, profit planning has been "tied" to the calculation of advance payments for income tax and the procedure for making them to the budget, the preparation of quarterly plans becomes necessary. Profit tax payers are interested in the fact that the difference between the amount of advance tax payments declared by them and the actual payments is minimal. However, the more important goal of profit planning is to determine the ability of the enterprise to finance its needs.
The object of planning is the planned elements of profit, mainly profit from the sale of products, performance of work, provision of services. The basis for the calculation is the volume of the production program, which is based on consumer orders and business contracts.
In the most general view profit is the difference between price and cost, but when calculating the planned profit, it is necessary to clarify the volume of products from the sale of which this profit is expected. It is necessary to distinguish the planned amount of profit per commodity output from the profit planned for the volume of products sold. Profit on commodity output is planned on the basis of cost estimates for the production and sale of products, which determines the cost of commodity output for the planned period.
The least squares method allows you to predict the future values of any indicator based on its previous values. It consists in approximating the analyzed indicator by a mathematical function, in the simplest case - a linear one, that is, a function of the form y=ax+b. For known values x i , y i we can write down the system of equations:
If we denote the year through x, taking 2008 as a reference point (x=0), and through y the predicted indicator, then for 2010 (x=2) the system solution will be as follows:
Extrapolation of form No. 2 by the least squares method (Table 18) shows a further increase in revenue and cost. Although relative cost growth is projected to exceed revenue growth, gross margin is expected to grow by 7.37% as revenue exceeds cost and relative growth impacts gross margin greater influence. Profit before tax will increase not only due to the growth of profit from sales, but also due to the growth of profit from other income and expenses, and its growth will be 9.82%. Net profit growth will be 9.3%.
Table 18 - General forecast profit and loss in form No. 2
Having similarly predicted revenue and cost per unit of production and the volume of its sales, it is possible to calculate the projected values of gross profit for each type of product (Table 19) and for the enterprise as a whole and, accordingly, net profit (Table 20). This is a more efficient approach than the above forecasting of profit only on the basis of its previous values.
This forecast shows a significant increase in gross profit from the sale of grain (including for wheat - by 43.66%), primarily due to a significant excess of the increase in revenue per centner of products compared to the increase in its cost (for wheat - 14.53% against 7, 69%). Gross profit from the sale of sugar beet will decrease by 39.92% mainly due to a decrease in its sales volume by 39.31%.
Table 19 - Forecast of gross profit by type of product and in general for the enterprise based on forecasting the factors of its formation
The sale of cattle meat in 2010 will bring a small loss, because with almost equal values revenue and cost of the latter will increase slightly more. Sales volume of pig meat in 2007-2009 is stable, therefore, it is not expected to increase in 2010 either. 24.01%. Despite the projected increase in the volume of milk sales, the increase in cost and decrease in revenue per centner will lead to a decrease in gross profit from milk sales by 5.46%.
As a result, the total gross profit will increase by 5.77%, which will lead to an increase in net profit by 7.84%.
Table 20 - Forecast of net profit in form No. 2 based on the data obtained in Table. 19 gross profit values
Another way to predict profit is to calculate it based on predicting the results of the impact on profit of the dynamics of the factors of its formation based on the results factor analysis(Table 21), however, if data are available for less than 4 years, the mathematical forecasting mechanism degenerates, and its results do not differ from the results of a simple extrapolation of the total gross profit (Table 18).
Net profit can also be predicted based on forecasts of the cost of production assets and the level of profitability of the enterprise (Table 22). This forecast shows an increase in fixed and current assets by 16.39% and 12.03%, respectively, which will lead to an increase in net profit by 6.04%, despite a decrease in the level of profitability of the enterprise by 6.88%.
Table 21 - Forecast of gross profit by type of product and in general for the enterprise based on the results of its factor analysis
Table 22 - Forecast of net profit by the dynamics of production assets
The dispersion of the received forecast values of net profit was 3.1%. For enough accurate forecasts in any case, data for at least 5-7 previous years are required.
So, according to the results of the received forecasts in 2010, gross profit is expected to grow relative to 2009 for grain crops and pigs, which confirms the prospects of these types of products, and its decrease for sugar beet, cattle and milk. Further growth of the company's gross profit and its net profit is also expected.
You can make an approximate forecast of the profit of the enterprise yourself. How? What for? The impact of the profit forecast on the investment attractiveness of the enterprise (10+)
Classical (fundamental) analysis - Profit forecast
Let's add to the amount received a monthly payroll, based on the consideration that in the event of a deterioration in the situation, it may be necessary to reduce up to a third of the employees by paying them three salaries. Let's add other obligations known to us (sponsorship football team and other strange projects) that cannot be quickly disposed of. We will receive the full annual amount of obligations. Let's compare it with the projected annual profit. If liabilities are less than profit, we have a very good company in front of us.
Is it possible to buy shares of companies with worse performance? Yes, but cheap. These are risky investments, there should be few of them in the portfolio. In addition, you need to understand how the company will get out of this situation. You need to be confident that the company can handle it. If in doubt, it is better to look for another investment object.
Too low debt also does not indicate the effectiveness of the company. In conditions of virtually zero interest rates, the ability to properly work with borrowed capital is absolutely necessary.
Profit Forecast
We will estimate profit without revaluation. The revaluation simply reflects the increase in the nominal value of the company's fixed assets, usually caused by inflation. Fortunately, most of our companies do not revalue fixed assets, because, roughly speaking, the revaluation, if it is positive, leads to the need to pay income tax on this amount.
Let's take last year's income statement as a basis. If there is an overestimation in it, then subtract it from the final indicator. Let's make a profit forecast for the next year, adjusting the income statement of the last year and taking into account:
- commodity price forecasts,
- price forecasts for finished products,
- company management forecasts for changes in production volumes,
- upcoming tax changes.
Profit distribution. Theoretically, the distribution of profits (in the sense of how much will go to dividends and how much will be reinvested) does not affect the attractiveness of the asset, since the reinvested profit increases the fair price of the share, which provides shareholders with the necessary income. Moreover, dividends are subject to taxes, and the price growth of shares prior to their sale is not taxed. However, there is a circumstance to which attention must be paid.
How effectively is profit invested? If the board of directors proposes to shareholders not to distribute part of the profit and reinvest it in the business, then information must be provided on in which projects this profit will be invested. If there is no specific investment plan, then, most likely, the profits are going to be stolen.
When comparing the calculated profit from investing in a company with other alternative investments (bank deposits), one should keep in mind inflation. The resulting profit is cleared of inflation, since we did not take into account the revaluation of fixed assets in the calculation. This means that in addition to the profit received, your principal amount of investments will grow on average at the rate of inflation or more, while the funds on a bank deposit only generate income, but the principal amount of investments depreciates. Thus, quite roughly, to compare investments in bank deposits and investments in equity assets, it is necessary to add the projected percentage inflation to the projected profit from an equity asset in percent. And compare the amount already received with the deposit. For example, a company will provide a yield (profit / capitalization) of 10% per annum, inflation according to government forecasts of 8%, in total, for comparison with a deposit, you need to take a rate of 18% per annum.
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A company can plan only those indicators that it is able to manage, for example, most of the expenses. The rest of the indicators - demand, risks, competitors' actions - can only be predicted. part is not sufficiently detailed and often not substantiated. Right choice methods for forecasting the company's income and taking into account all significant factors affecting the value of the forecast, will make it more accurate.
A company needs a revenue forecast not to determine future financial performance, but to develop a strategy and tactics for the forecast period. It must be remembered that the forecast is not an end in itself. Therefore, forecasting methods should not be particularly accurate, but should only correctly reflect the specifics of the business and correctly indicate the direction of management decisions made by the company.
Forecasting methods
All forecasting methods used in the analysis can be divided into expert and statistical. Let's consider these methods in more detail.
Expert Methods
When using expert methods, a group of specialists (experts) is surveyed. As a rule, top managers act as experts inside companies - general, commercial, financial director, production director, etc. Consultants, financial analysts, marketers involved in market research, and other specialists can act as external experts.
Such forecasting methods are used by almost all companies, but they are more suitable for assessing the development of an unstable market, which is difficult to describe using mathematical formulas and dependencies, as well as for long-term forecasting. The success of the application of expert methods depends on the number and qualifications of experts who can be involved in the work.
Statistical Methods
If the market is relatively predictable and the company has data on the previous dynamics of the predicted indicator or on the dynamics of the factors that influence it, then it is advisable to use statistical methods for short- or medium-term forecasting. These methods are based on the assumption that in the future the analyzed indicator will change according to the same laws as in the past. Statistical methods of varying complexity are used by almost all market-oriented companies, using either Excel or specialized statistical programs (SPSS, Statistica, etc.).
Let's consider two statistical methods - building a trend and the method of chain indices.
Building a trend. Most of the statistical forecasting methods are based on the construction of a trend, that is, a mathematical equation that describes the behavior of the predicted indicator. The most common example of such an equation is the dependence of sales on time. The dynamics of an indicator can be described as a straight line (linear trend) or a curve ( non-linear trend) When constructing the line equations, the following rules should be followed:
- if you need to determine only the general trend or compare the growth rates of various indicators, you can limit yourself to a linear trend;
- if sales grow "like an avalanche" (for example, when a product becomes fashionable), an exponential trend is used. However, this method can only be used for short-term forecasts: such a rapid growth in most cases cannot be long-term, since in a competitive industry, an increase in demand will cause an increase in supply from competing companies. Therefore, already in the next planning period, the trend will have to be revised;
- if seasonal fluctuations are observed in sales volume (for example, by seasons), a polynomial trend is used;
- if sales first grew and then stabilized at a certain level, or, conversely, were first high and then decreased, then a new stable level is determined using a logarithmic trend.
In addition to time, the trendline equation can include previous predicted values (autoregression), averaged values (moving average method), etc. Sometimes the predicted value is not homogeneous. For example, the sales volume of a construction company may depend on the amount of advertising, the volume of mortgage lending, and even on GDP. Then the trend equation includes the values of the quantities that affect it (possibly with a time shift) with some coefficients (multiple regression).
Method of chain indices. If it is necessary to take into account seasonal fluctuations in the forecast, the method of chain indices can be applied. To do this, first, chain sales indices are calculated (the ratio of sales volume of each subsequent period to the previous one) and the average value of this index for each period (month) over several years is found. Then the sales volume of the last reporting period is multiplied by the index of the next (planned). The resulting value is the forecast for the first forecast period. To calculate the forecast for the second and subsequent periods, the procedure is similar. The chain index method can be combined with other forecasting methods.
Forecasting stages
To make a forecast of income, it is necessary to determine the future values of the company's sales volume in physical terms and evaluate changes in the pricing policy. Their product will give a forecast of the company's income in value terms.
Consideration of factors
Forecasts of prices and physical volume of sales are recommended to be compiled separately, since the dynamics of these indicators may be different. Both of these components depend on a large number of factors, the values of which can vary significantly (demographic conditions in the region, dynamics of household incomes, the state of industries that produce substitute goods, etc.). Accordingly, to begin with, it is necessary to identify factors that can affect the value of the forecast, that is, relevant factors. As a rule, analysts focus on the forecast external factors which the company cannot influence. But do not forget about internal factors such as advertising policy, changes in assortment, opening of new offices, etc., as they can have a significant impact on the value of the forecast. It is also necessary to determine how each factor affects the predicted indicator.
Building predictive values
Then you need to understand how the relevant factors will change over time. This can be done using one of the forecasting methods described above. It should be noted that sometimes factors can change abruptly. To reflect such changes, correction factors are usually used, obtained by analyzing statistical data (seasonality) and information about expected changes (reports from the State Statistics Committee of Russia, expert opinions). The values of the correction factors must be economically justified. The forecast value of the factor is corrected by multiplying the forecasts obtained using the trend by correction factors. After the forecast values of all factors affecting the company's income are obtained, the pessimistic, optimistic and most probable values of sales volume and prices are calculated.
- Personal experience Sergey Pustovalov, CFO of Talosto (St. Petersburg)
We make a forecast of the company's development for a period of five years, broken down by years and business areas, and calculate it for the pessimistic, optimistic and most realistic scenarios. The main factors influencing the financial forecast of the company are the gross product by sales markets, investments in advertising, the actions of competitors, and the growth of market segments. The target indicator for us is the market share of the company - it must grow faster than the market, or at least along with it. Thus, under the pessimistic scenario, the growth of target market segments is considered minimal and amounts to 15% per year.
To determine the dynamics external environment we use not only statistical data for past periods, but also the forecasts of the State Statistics Committee of Russia, the Ministry of Economic Development and Trade, data news agencies, forecasts and results of industry monitoring prepared for us by marketing agencies, as well as reviews of investment funds. The final value of revenue is obtained by adjusting the baseline forecast by a factor (or factors) that takes into account the impact of these indicators.
Santekhnika LLC is a fast-growing company specializing in the wholesale trade of finishing materials and economy-class sanitary ware. The factors influencing the volume of sales are shown in the figure. Let's consider building a forecast for one of the main factors - sales of sanitary ware for new residential buildings for 2005-2006.
The most important factor influencing the volume of sanitary ware sales is the volume of housing construction. For several years, the market has seen an intensive growth in construction volumes and prices for apartments, which has slowed down in the last two years and now shows a tendency to stabilize. As a result of forecasting by statistical methods, it was found that the best way the dependence of the volume of housing construction on time is described by a logarithmic trend. To build a basic forecast, the following equation was obtained:
Y=14.762Ln(x) + 18.313,
where Y is the volume of housing construction;
х - time (by years, 1998 is taken as х = 1);
14.762 and 18.313 - calculated coefficients.
Real estate market analysts expect significant changes in the market over the forecast years. Some experts expect a sharp increase in demand for new housing and growth in sales by 20% per year from the baseline forecast (optimistic forecast). Other experts believe that the market is "overheated", so in 2005 investors who bought housing for speculative purposes will start selling it, which will lead to a drop in sales of new apartments by 40%. Then, in their opinion, the market will stabilize and in 2006 it will grow by 20% from the level of 2005 (a pessimistic scenario). In turn, banking specialists believe that the implementation of the state program for the development of mortgages will contribute to an increase in housing construction by 3% annually. Other external factors will remain unchanged. All received forecasts are summarized in Table. one.
Now it is necessary to determine how the forecast will change under the influence of internal factors. In order to maintain and increase the market share in the forecast period, it is planned to expand the range of goods sold at the expense of modern expensive sanitary ware. Demand for such sanitary ware is constantly growing, so due to the change in the assortment, the company plans to increase its sales by 20% (optimistic forecast), in the worst case - by 10% (pessimistic). Now we can summarize the effect of internal and external factors for 2005 (see Table 2). It is easy to compile a similar table for 2006 as well.
Despite the fact that the resulting sales forecasts for sanitary ware for new homes vary greatly (from -28.2% to +43.6%), they provide the management of the company important information. Managers can see how sales volumes will change if the housing boom continues or if prices for "speculative" housing start to fall. Having such forecasts, they can develop scenarios for the company's actions in a given situation and determine ways to achieve a positive financial result in any eventuality.
Scenarios for the future
For each income forecast option, it is necessary to develop an appropriate cost scenario. This is done using the company's existing budget model 1 . Then the projected income and planned expenses of the company are brought together and four boundary development options are obtained (see Table 3). For each option, the main financial budgets are built - BDDS, BDR and the forecast balance. Analysis of the results obtained from the point of view of the company's strategy and its financial performance allows us to develop an action plan for each of the development scenarios, taking into account their inherent risks. As a result, the company should receive the most probable scenario of its development and a developed set of measures and actions in case the actual indicators deviate from their predicted values.
- Personal experience
Denis Ivanov, CEO CJSC Financial Reserve (Moscow)
In our company, the forecast of future income every six months is made by the heads of revenue-generating departments. As a rule, the future result of their work is expressed by one value, but the error error (range of values) is determined. The planning and economic department draws up a master plan and indicates the boundary values of possible deviations. If there is a possibility of an event that significantly affects the forecast value, then the planning and economic department determines the values of income and expenses for such a scenario.
These scenarios are processed in the planning and economic department, which adds a range of future exchange rates and interest rates to the forecast data. Then, taking into account future expenses, a payment schedule is determined, after which the accounting department makes a forecast for net profit and develops tax planning measures.
For the timely identification of deviations from the forecast, it is necessary to develop a set of benchmarks. The selection of indicators that will be used to analyze the execution of the forecast begins even during the forecasting and planning of revenue and expenses. It is then that the key indicators (market share, prices, physical volume of sales, labor productivity, etc.) are determined, on which the forecast depends, and their initial values. It is also necessary to add to the number of control indicators the parameters on which the financial result will depend (turnover accounts receivable, profitability, etc.). Tracking changes to selected key indicators, managers can see which forecast and with what deviations is implemented in practice, and make decisions in accordance with previously developed scenarios.
- Personal experience
Oleg Frakin, Financial Director of Wine World Holding LLC (Moscow)
For forecasting to be effective, forecast performance data must be used to make decisions in the current situation, and not based on the results of the past. At the same time, it is impossible to force departments to quickly process expenses and incomes, for example, in Excel. This requires a specialized program that allows you to collect, plan and analyze data, conduct plan-fact analysis until the end of the reporting period. Otherwise, there will be no efficiency and any forecast will lose its meaning, since the opportunities for its implementation will be missed.
In companies for which most of costs is constant (as, for example, with us), there is one more "brake" for operational management within the forecast. If the sales plan is not met, I cannot, for example, fire half the staff in order to reduce fixed costs. You can only regulate variable costs. Partially, this problem can be solved by converting fixed costs into variables, that is, using outsourcing, for example, in the IT service, but this is not always possible. As a result, the work scenarios for our company are quite obvious: if we earned 20% less than planned for the period, then I can save a maximum of 5% of the pre-approved amount.
Forecast errors
Evaluation of one development option
The most common mistake is to evaluate one development option. Majority Analysts Russian companies do not consider it necessary to calculate several options for the development of events. In the best case, planning is carried out by groups of goods (range), regions or distribution channels, when only one set of forecast parameters (price and volume) is calculated for each direction, which, as a rule, is underestimated “for safety”. Subsequently, when assessing the sensitivity of the financial model to the input parameters, financiers can analyze changes in the company's key financial indicators in relation to these parameters. However, mere analysis is not enough - a plan of action is needed. Otherwise, the company may not be ready for a significant excess (decrease) in sales compared to the forecast.
Most often, when forecasting, the extrapolation method is used, that is, determining the relationship between model parameters based on data from past periods and transferring these dependencies to future ones. For example, a company forecasts sales growth of 10% per year for five years in advance, while not taking into account current market trends and possible economic events (for example, Russia's accession to the WTO). As a result, such forecasts may turn out to be useless in a year. Therefore, extrapolation is suitable only as a tool for "harvesting" predictive values.
- Personal experience
Evgeny Dubinin, deputy financial director construction company "LEK-Moscow"
It is wrong to use only mathematical methods in forecasting, even the most complex ones, because in this case the economic meaning of events is not taken into account. If the forecast of the US dollar in early 1998 had been made by a mathematician who did not understand anything about economics, he would have built a dependence that did not take into account the current situation with the country's domestic debt, and would not have been able to predict the devaluation of the ruble.
Underestimating or ignoring factors
This error appears when trying to take into account future changes in the external and internal environment of the company. Relevant factors are often defined in a simplistic way, underestimating both their individual and cumulative influence. For example, for real estate, the relevant factors will be not only the growth of personal income and lower mortgage interest rates, but also the demographic situation.
Incomplete accounting of proposed changes
The proposed changes should be adequately taken into account both in the revenue and expenditure parts of the budgets. Otherwise, a situation may arise when additional income will be planned without taking into account additional expenses. Most often, this concerns conditionally fixed costs: wages management personnel, advertising, communications, etc. There is also a reverse option, when the company plans to cut costs, believing that this will not affect income in any way.
The desire to wishful thinking
Many people, by virtue of their own psychological characteristics unwilling to assess the situation realistically. Executives often prefer a positive outlook on the development of their company's business. This leads to the fact that the company is not ready to withstand negative trends in the external environment.
So how do you predict earnings? The answer to this question is quite clear: it must be done in such a way that the company's management can make informed, rational decisions about the company's strategy and tactics in various areas based on it. Do not chase complex mathematical methods trying to guess the future. The forecast of income must be made adequate to the economic processes of the company and the conditions of the market in which it operates.
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