The Thoughtful Forecaster

Summary of Case 6: The Thoughtful Forecaster

            Becoming a thoughtful forecaster is important to the development of any company today. Understanding the financial aspects of your company can be the deal-breaking point of whether your company is a successful one or not. In the case, “The Thoughtful Forecaster”, we learn that sometimes you are right and sometimes you are wrong, which is partially due to one’s bias. We also learn that being a thoughtful forecaster involves trial and era. It isn’t easy but throughout the processes you start to understand the financial relationships within your business.  

            The financial statements provide information needed in order to make a proper analysis and provides you with the historical strengths and weaknesses of your business. The income statement, also known as the “profit-and-loss statement”, is utilized to measure the flow of cost, revenue, and profits over a period of time. The balance sheet gives an over view of business investments and the financing in a particular time. Together these two statements can give a thorough outlook of the business’s performance and a better understanding of the mechanics that make up the business operations.

            Interpreting and utilizing financial ratios is an important way to evolve into a successful financial forecaster. Examining a business’s performance includes: growth rates, margins, turnover, and return on investments. Growth rates capture the year-on-year change in percentage of a particular line item. It can be separated into two growth measures: unit growth and price growth. Unit growth is the growth of revenue due to an increase in units sold. Price growth is the growth revenue due to an increase in the price of each unit. Margin ratios are the percentages of revenue that has not been consumed by any business costs. Margins also measure the cost structure of the business which includes important definitions/ratios. These are: gross margin,...