Financial forecasting

One of the most important tasks of the Financial Department in any company is to forecast revenues (as from sales), the costs, and expenses that the company will have, as well as its profits. The better the forecast is the more profitable a business may become.

First of all, potential sales are forecast. This is based on both previous results and several other sources of information.

One is industry norms - what sales are typical for businesses of a similar size and type.

A second source is requesting the opinions of key people who invest in the business.

The third source is the expectations of the users. For instance, if a business serves customers that can be identified, they should be asked what they expect to purchase. The firm needs to take those expectations into account in their plans for the future.

The next source is simulated test markets, when some new products are tested in a few stores or outlets. This helps to estimate how well the products may sell. There are other sources of information for forecasting sales as well.

When the sales forecast has been made, the next step is to forecast profits. This is based on the sales forecast. Deducting the costs and expenses from the sales revenue will show the net profit. Then taxes should be deducted, to reveal the net profit after taxes - the final result of forecasting.

The budget is drawn up on the basis of all the forecasts, and it is the most important document used to regulate all the finances of the firm during the budget period.

Another very important document is a balance sheet. This shows the financial position of a business, revealing everything the business has financially: its assets, losses, debts, and profits.

A balance sheet gives a kind of momentary photo, showing what a firm owns and what it owes on an exact date. That is why it must be regularly updated.

4.2. Find in the text English equivalents of these words and phrases:

1. прогнозувати доход

2. видатки

3. прибутковий бізнес

4. потенційний продаж

5. попередній

6. джерела інформації

7. промисловий стандарт

8. схожий, подібний

9. опитування точок зору

10. очікування

11. моделювати

12. пробний ринок

13. торгова точка, ринок збуту

14. оцінювати

15. віднімати

16. чистий прибуток

17. податок

18. виявляти, показувати

19. складати бюджет

20. балансова відомість

21. бути винним, заборгувати

22. обновляти

4.3. On the basis of the text you have read, summarize:

1. what a sales forecast is and how it is made (previous results; sources of information; sales typical for business; a similar size and type; key people; expectations of the users; some new products are tested in a few stores or outlets);

2. what a profits forecast is and how it is made (to be based on; sales revenue; the net profit after taxes; the final result of forecasting);

3. what a budget of a firm is defined (the budget is drawn up; on the basis of all the forecasts; document; to regulate finances; during the budget period);

4. what a balance sheet is (important document; financial position; assets; losses; debts; profits; momentary photo; on an exact date; regularly updated).

5.1. Read text 5 and make a list of key-words.

TEXT 5