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After the Japanese wave of business process management came the concept of Business Process Re-engineering which rocked the world of BPM. The idea of BPM and the resultant benefits have been mentioned below: What about Those Companies That Did Not Change As said earlier, the Japanese companies were able to understand the dimension of time […]
Implementation of ERP System, is a complex exercise, involving many process alterations and several legacy issues. Organizations need a implementation strategy encompassing both pre implementation and implementation stages. The fallout of a poor strategy is unpreparedness of employees, implementation not in conformity with wider business strategy, poor business process redesign and time and cost overrun. […]
Well Defined Scope of the Project: A well-defined scope of the project is perhaps the most important deliverable of the Define phase. Scope document goes a long way in finding the solution. A lot of organizations resources have been wasted and no substantial results have been obtained because of the failure to correctly scope a […]
The city of Seattle, Washington is one of the most prominent economic centers in the world. It houses companies like Microsoft and Amazon which are some of the wealthiest and most powerful companies in the entire world. However, this prosperous city in the most prosperous nation of the world has become a victim of its […]
Introduction In layman’s term, e-procurement is nothing but electronic data transfer to support operational, tactical and strategic procurement. E-procurement has been existence for long time in one form or the other earlier it was done through electronic data interchange. In today’s environment, most of the e-procurement is done through the Internet. Traditionally, procurement of supplies […]
Companies all around the world are focused on quarterly as well as annual results. As soon as these results are announced, the financial markets give some sort of reaction. If the results are good, the stock prices rise. If not, stock prices tend to fall.
However, in either case, the stock price is linked to the latest earnings numbers which are released by any company. This is the reason why companies spend many hours collating these results and trying to project them as positive news to the investors.
This is understandable to some extent. Investors are right when it comes to obsessing about past information. However, the extreme focus which company executives lay on these results is not really understandable.
Instead of focusing on the past, company executives would be better off if they focused on the future, i.e. the forecasts. These executives should know that the valuation of any company is actually driven by the discounted value of cash flows. They should also be aware that forecast statements are the roadmap to making projected cash-flows a reality.
Some companies do give out revenue guidance for the forthcoming year along with their annual reports. However, the focus on the future is much less as compared to the focus on the past.
In this article, we will explore how the forecast statement can be strengthened so that it provides more details and better insights to prospective investors.
Forecasts are usually prepared for a 12 month period at most companies. However, it should ideally be prepared for a time duration between three to five years. This is because a longer term period captures the strategic shifts better.
When forecasts are prepared for a 12 month period, the values are derived by updating the previous values. However, in most cases, the future periods are not like past periods. When companies look at 12 month periods, they tend to miss the wood for the trees. This can be avoided by increasing the forecast period.
The bottom line is that forecasting is as important (if not more important) as the quarterly/annual results. However, since they are not a mandatory financial statement, considerably less time is devoted to their preparation. This needs to change since forecasts can also be used strategically.
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