Question

Chapter 8

Define a sales forecast? Why is it important? What could be the consequences of it being inaccurate?

What is the purpose of a balance sheet? Name and describe 2 components of a balance sheet?

What benefits can be derived from a break even analysis?

Answer 1

Sales forecast is where we project the future sales of a product or a service with the help of growth rate in each year. We can forecast the next quarter's sales with the help of revenue metrics and sales trend of each product of the company. We can forecast the next five years of each productline and decide if the profit is on an increase/decrease, hence it's important. It's also important for capital budgeting, whether the project handling certain products should be continued or not. In the consequences of sales forecast being inaccurate leads to imperfect decisions and may lead to the poor branding the product or envisage the loses in the future. So we need to determine the factors of determining the growth rate when applying the same variable in sales forecast.

Balance sheet is a financial statement which is prepared after profit and loss statement. The statement is a T form of table which has components of Assets and Liabilities which should be equivalent by figures. This shows us the fixed and current assets used in the business on the Assets side, current and long term liabilities of the company on the Liabilities side. We see current assets and short term bank overdrafts as components of a balance sheet in each side which helps to build the working capital and inventory of the firm.

Break even analysis is performed to know the firm's profitability levels, and this point occurs when there is no profit or no loss occurs. Hence we can decide the fixed and variable cost it takes to produce a product.