Chapter 5 Financial Forecasting

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Chapter 5Financial Forecasting
2
Percent of Sales Method

• Discussed earlier in Chapter 2
• Recap
• Not the main focus of this chapter

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Financial Forecasting Estimation

• Trend function
• By extrapolation
• TREND(Known_Ys,Known_Xs,New_Xs,Const)
• Regression function
• Where to find the Regression Function in Excel?
• TOOLS gt Data Analysis gt Regression
• What to do when we dont see the data analysis
  option?
• Under Tools, choose Add-Ins
• Check both the Toolpak and Toolpak VBA boxes
• How to interpret the regression results?

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Regression Analysis

• Fitting the best line to a data set
• Mathematics behind regression analysis beyond
  scope of this course (take a graduate
  econometrics course)
• Best line defined as one that minimizes the sum
  of squared errors

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Regression Analysis

• Simple Regression
• Y a bX e
• where Y is called an dependent variable, X is
  called an independent or explanatory variable,
  and e is the residual term
• Example Beta of a stock
• Multiple Regression
• Y a bX1 cX2 dX3 e
• Example House appraisal, where Y is house
  price, Xs are characteristics of the house such
  as size, land size, location, garage, pool, etc.

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More Examples

• IBM returns 0.05 1.3SP500returns
• Sales 45 - 2300Interest rates
• House prices 65363 10802landsize 18.9Sqft
  4640OpenPool . . . . . . . .