Cash management question

cheryl78

Hello, I've got my aimulation for cash mangement on wednesday, i've been looking at the seasonal variations and predicting the trends and i am a little confused.

On the example in my book it says you take the last known figure for that period add on the number of trend occurances (you are trying to predict too) and then it multiplie this by a figure...and i have no idea where it comes from.

I hope this makes sense cos i would really like someone to clarify where it comes from.:thumbup:

SandyHood

Forecasting sales in a tricky subject.
You must not lose sight of future sales being the result of much more than historical trends.
May I cite the case of a turkey? His weight increased daily by the same amount from 1st to 15th December. All the trend analysis suggests he'll continue to increase his weight by the same amount each day in the future.
But external factors included the onset of Christmas, and he stopped putting on weight very suddenly.

Your text book appears rather more mechanical than real life.
But I hope this is some help

Trends are the underlying sales values in the past when you have taken out seasonality (e.g. turkey sales shoot up in December but are low in January)
Trends from the past are used to predict the future. If there is an underlying rate of growth, we might assume it will continue.

For example a year is divided into 4 quarters and the underlying sales (or trend) is

Year.....Quarter...................1.................................2..................................3 ..............................4............................
2006................................3200............................3400............................3600............................3800............................
2007................................4000............................4200............................4400............................4600............................

In this example it is pretty obvious that there is a growth of 200 each quarter.

We could have said that there were 8 quarters and that the sales rose from 3200 in quarter 1 to 4600 in quarter 8. In other words it took 7 quarters of growth to increase by 1400. So the average growth was 200 per quarter, but we can see that just by looking.

If you think this 200 per quarter will continue in the future then in the next quarter (i.e. 1 quarter after 2007 Q4) it will be 1 x 200 more, in the one after that 2 x 200 more and so on. So Q4 of 2009 will be 8 quarters after our 4600 value in Q4 2007 and that quarter will have a trend value of 8 x 200 more than 4600.

cheryl78

thanks for your help, i will definately use the method you've described as it seems more logical ...i couldn't for the life of me work out that equation in my book :crying: