78106_12_Web_Ch12A_p01-02

78106_12_Web_Ch12A_p01-02 - WEB EXTENSION 12A Advanced...

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WEB EXTENSION 12A Advanced Techniques for Forecasting Financial Statements Accounts T he techniques in Chapter 12 assumed that many items listed on the financial state- ments were proportional to sales, but that is not true in some cases. In this exten- sion we show how to forecast an item when it is not proportional to sales. If we assume that the relationship between a certain type of asset and sales is lin- ear, then we can use simple linear regression techniques to estimate the requirements for that type of asset for any given sales increase. For example, MicroDrive s sales, inventories, and receivables during the last 5 years are shown in the lower section of Figure 12A-1, and both of these current asset items are plotted in the upper section as scatter diagrams versus sales. Estimated regression equations, determined using a financial calculator or a spreadsheet, are also shown with each graph. For example, the estimated relationship between inventories and sales (in millions of dollars) is
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78106_12_Web_Ch12A_p01-02 - WEB EXTENSION 12A Advanced...

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