Forecasting and Capital Structure

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Sales Forecast Using Naïve Approach.
Naïve forecasting is a technique whereby the last period’s actual sales are used as the current period forecast without altering them or trying to create underlying factors. In naïve approach method, today’s results are used to predict tomorrow’s outcomes.
Year Actual Sales($) NaiveForecasting($) Error($)
2011 1,750,000 – 2012 2,000,000 1,750,000 250,000
2013 1,350,000 2,000,000 650,000
2014 2,250,000 1,350,000 900,000
2015 1,800,000 2,250,000 450,000
2016 1,950,000 1,800,000 150,000
2017 1,950,000 By using the naïve approach method, the sales of the next year is likely to be $1,950,000. It’s because in naïve approach method today’s sales can be tomorrow’s sales.
Sales Forecast Using Average Sales Approach
If sales have momentum, one can predict them easily. Averages are a degree of momentum. When forecasting sales using the average sales approach, one needs to know the total historical average. By using the following formula, one can easily determine the number of sales for the next period.
923925-56515= (1/n) *(Ai)
00

= (1/n) *(Ai)
59944076835i+1
00i+1
F
Period Actual Sales($) Forecast Sales($) Error($)
2011 1,750,000 – –
2012 2,000,000 1,750,000 250,000
2013 1,350,000 2,125,000 775,000
2014 2,250,000 1,866,666.67 383,333.33
2015 1,800,000 1,962,500 162500
2016 1,950,000 1,930,000 20,000
2017 1,933,333.33
When using the average sales approach the sales for the nex…