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Forecasting business activity is critical in financial planning. Identify the different methods of forecasting and how...

Forecasting business activity is critical in financial planning.

  • Identify the different methods of forecasting and how each method is used and the purpose of each.
  • Which method are you familiar with and why?
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Answer #1

Different types of Forecasting methods are as follows.

1) Straight line Method

- This type of method uses historical figures and trends to predict future data. This method uses Previous years or Historical data, for example if previous years data are given and there is expectation there will be 5% increment then that method is straight line. This method assumes that growth remains constant.

2) Moving Average

- Moving Average basically takes base of upcoming data for example if we need to calculate moving average of 5 days then then we will be calculated average of 1 to 5 days first and then 2 to 6 days again 3 to 7 and so on.

This method is better than Straight line because in straight line it is decided that X% will be the growth rate however in Moving average .trend analysis is done.

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