Use Ctrl + D to copy the formula down through December.ģ. The formula used is =AVERAGE(B4:B6), which calculates the average revenue from January to March. The first forecast should begin in March, which is cell C6. The 3-month moving average is calculated by taking the average of the current and past two months revenues. Create two columns, 3-month moving averages and 5-month moving averages.Ģ.
To perform a moving average forecast, the revenue data should be placed in the vertical column. The most common types are the 3-month and 5-month moving averages.ġ. Moving averages are a smoothing technique that looks at the underlying pattern of a set of data to establish an estimate of future values. Select cell D7 to H7, then use the shortcut Ctrl + R to copy the formula all the way to the right. The formula used to calculate 2017 revenue is =C7*(1+D5).ģ. To forecast future revenues, take the previous year’s figure and multiply it by the growth rate. Assuming the growth will remain constant into the future, we will use the same rate for 2017 – 2021.Ģ. We can use the formula =(C7-B7)/B7 to get this number. For 2016, the growth rate was 4.0% based on historical performance. The first step in straight-line forecasting is to determine the sales growth rate that will be used to calculate future revenues. In the example provided below, we will look at how straight-line forecasting is done by a retail business that assumes a constant sales growth rate of 4% for the next five years.ġ. A financial analyst uses historical figures and trends to predict future revenue growth. The straight-line method is one of the simplest and easy-to-follow forecasting methods. While there are a wide range of frequently used quantitative budget forecasting tools, in this article we focus on the top four methods: (1) straight-line, (2) moving average, (3) simple linear regression, and (4) multiple linear regression.Ĭompare one independent with one dependent variableĬompare more than one independent variable with one dependent variable There are four main types of forecasting methods that financial analysts use to predict future revenues, expenses, and capital costs for a business. Updated JanuTop Four Types of Forecasting Methods
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