Question

1. The first step in the financial statement forecasting is to project sales and other operating activities. Sales numbers are determined by both a volume component and price component. Projecting prices depends on factors specific to the firm and its industry that might affect demand and price elasticity. For the following types of firms, discuss whether it would be likely that the firm would be able to project future prices:

1. A firm in a capital-intensive industry that is expected to operate near capacity for the near future.

2. A firm in an industry that is expected to experience numerous technological improvements.

3. A firm with products that are transitioning from the growth to maturity phase of the product life cycle.

4. A firm that has established a well-known brand name and image

Answer 1

A. Yes- Firm in high capital intensive industry which is expected to operate near capacity can easily be involved in sales forecasting because they will be having almost equal uniform rate of growth in their sales because the overall production level is raised

B. No- when there is high rate of change in the technology then sales cannot be properly estimated because there will be change in the level of sales dramatically

C. No- when there is a change in the life cycle of the company then it is not easy to estimate the sales.

D. Yes- company which is well established is always in the maturity phase and they can easily forecast their sales because they are less volatile to uncertainty