Description

Description: This course applies the fundamentals of corporate finance from the perspective of the business manager. Once the course is completed, you will have learned financial forecasting, co-integration, random walk, seasonality, smoothing and errors and an introduction to survey and research methods.

Background: Financial management in both private and public organizations typically operates under conditions of uncertainty or risk. Probably the most important function of business is forecasting. A forecast is a starting point for planning. The objective of forecasting is to reduce risk in decision making. In business, forecasts are the basis for capacity planning, production and inventory planning, manpower planning, planning for sales and market share, financial planning and budgeting, planning for research and development and top management's strategic planning. Sales forecasts are especially crucial aspects of many financial management activities, including budgets, profit planning, capital expenditure analysis and acquisition and merger analysis.
Forecasts are needed for marketing, production, purchasing, manpower and financial planning. Further, top management needs forecasts for planning and implementing long-term strategic objectives and planning for capital expenditures.
the financial manager must estimate the future cash inflow and outflow.

Forecasts must also be made of money and credit conditions and interest rates so that the cash needs of the firm may be met at the lowest possible cost.
Long-term forecasts are needed for the planning of changes in the company's capital structure.
There are basically two approaches to forecasting: qualitative and quantitative. They are as follows:

1. Quantitative Approach
a) Forecasts based on historical data
b) Associative (Causal) forecasts
c) Forecasts based on consumer behavior - Markov approach
d) Indirect methods

Quantitative models work superbly as long as little or no systematic change in the environment takes place. When patterns or relationships do change, by themselves, the objective models are of little use. It is here where the qualitative approach based on human judgment is indispensable.

2. Qualitative Approach
Forecasts based on judgment and opinion
• Executive opinions
• Delphi technique
• Sales force polling
• Consumer surveys