Sales And Cash Flow Forecast
The coming of digital technology, known as the representation of two binary digits: ‘0’ and ‘1’, few decades ago has enabled us to convert any kind of information (voice, data, and video) into other forms. This advantage of digital age, in turn, enables us to experience the era where people can communicate in many forms: voice (through telephone, handy talky etc), data (short message services/SMS, facsimile etc), and video (video streaming, video conference etc). This situation refers to the era people call as the convergence in digital technologies.
The convergence of digital technologies including television, telephony, and computers has stimulated the reach of the innovations of the Internet that grew from inter-university computer networks in United States. Furthermore, the growing popularity in those multimedia services, in fact, has increased the demand for Internet bandwidth. While emerging information and communication technologies have helped Internet growing faster, we witness that nowadays people could access Internet virtually from anywhere including their mobile phones and other wireless gadgets like PDAs.
Concerning the attractiveness of telecommunication and Internet services, in this paper, we would like to elaborate sales and cash flow forecast in a startup company dealing with telecommunication services. For simplicity, we named the company as ABC plc.
In general, there are two approaches to research: Qualitative and Quantitative. Qualitative approaches are research that is carried out through interviews and observations. This kind of research enables a researcher to investigate in little more detail on the individual perceptions of a phenomenon. Since the research deals with the personal, therefore, such an investigation is limited in its scope.
Moreover, observation becomes an important technique for collecting data concerning what occurs in a real-life situation. This method also helps us to reach an understanding about the perceptions of those who are being studied. To be specific, we employ non-participant observation method especially by analyzing qualitative information from journals, books, magazines and many more.
The method does not involve direct interviews; therefore, the method will slightly reduce objectivity and the accuracy of information. We are retrieving more reliable data especially concerning the subscribers forecasting from telecommunication magazines, a annual report of a telecommunication company in U.K., and various publications. Using the data resources above, we are hoping to present an independent and objective analysis toward the contemporary issue.
1. Cash flow Forecasting Model
Cash flow forecasting is one of the most useful planning tools. It can help you understand the requirement for business financing, the impact of late payments etc. The cash flow forecasting model usually showed as an Excel spreadsheet. The undiscounted and discounted cash flow analyses are based on a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating results of the asset group, discount rate and long-term growth rate (White Paper – Making Cash Flow Forecasts, 2004).
2. Sales Estimate Statement
Every financial statement forecast begins with an estimate of future sales. Typically the sales estimate is then combined with a margin forecast to estimate future income and combined with a turnover forecast to estimate future assets. Although the sales forecast is the starting point for the entire financial statement forecasting exercise, there is surprisingly little published guidance on how one should go about making this estimate. The purpose of this paper is to present a reasonably general sales forecasting model and to demonstrate its use in the retail sector (Sales Estimation, 2004).
3. ABC plc: A Fledgling Telecommunication Company
We assume that when ABC services is launched, the company allows customers to make voice over internet calls, e-mail, instant messaging through Yahoo! messenger and text messaging to give consumers a truly converged multi-media communications experience.
The company is currently in United Kingdom with vision to be a Europe’s leading providers of telecommunications services. Its principal activities include local, national and international telecommunications services, higher-value broadband and internet products and services, and IT solutions.
Below is cash flow forecasting of ABC Company in which the data is derived from British Telecom plc in order to provide reasonable and acceptable information on the telecommunication market in the United Kingdom.
- Cash Flow Forecast of ABC plc
|ABC plc||CASHFLOW FORECAST IN RESPECT OF THE PERIOD:|
|m £||m £||m £||m £||m £||m £||m £||m £||m £||m £||m £||m £|
|Loans / Grants Rec’d||0|
|Own Work Capitalised||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(64)||(772)|
|Goodwill and other intagibles amortisation||2||2||2||2||2||2||2||2||2||2||2||2||22|
|Payments to telecommunication||310||310||310||310||310||310||310||310||310||310||310||310||3725|
|Other Operating Cost||470||470||470||470||470||470||470||470||470||470||470||470||5636|
|Net Exceptional Cost||4.91||4.91||4.91||4.91||4.91||4.91||4.91||4.91||4.91||4.91||4.91||4.91||59|
|UK Corporation Tax Paid||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(26.58)||(319)|
|Non UK Tax Paid||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(1.08)||(13)|
|PROFIT & LOSS FORECAST IN RESPECT OF THE PERIOD:||55187|
(BT Group plc Annual Report, 2005)
III. Sales Estimation Statement of ABC plc
We can use method to determine how many people exist in the market and how big a share of that market would they capture for this year. In this paper, we assume that the company has over 17, 6 million within the next five year, which means that the ABC plc is five-year behind the British Telecom in terms of subscriber number. By using data from BT Group plc Annual Report (2005), we can find the proportion of the usage at the each customer segment:
|Group turnover by customer segment (2010)|
From 17, 6 million customers, we can calculate:
|Number of each customer|
|Costumer||17,6 million * 30,27 % = 5327520|
|Business||17,6 million * 13,23 % = 2328480|
|Major Corporate||17,6 million * 32,76 % = 5765760|
|Wholesale||17,6 million * 23,60 % = 4153600|
|Other||17,6 million * 0,13 % = 22880|
The next step is to determine the average yearly sales to those customers. There are ways to determine, through research, what the average sale would be per customer. For this case:
|Sale per costumer (£)|
|Costumer||£ 5637 million / 5327520 = £ 1058,09|
|Business||£ 2464 million / 2328480 = £ 10582,374|
|Major Corporate||£ 6101 million / 5765760 = £ 1058,14|
|Wholesale||£ 4396 million / 4153600 = £ 1058,35|
|Other||£ 25 million / 22880 = £ 1092,65|
The above calculation assumes that ABC plc is winning business across the Europe and responding innovatively to an intense competitive environment, particularly in the U.K. Their agreement to acquire another company is another step in ABC’s transformation into a leading provider of IT and networking services.
In this paper, we assume that by having over 17 million broadband DSL customers within the next five years (2010), the ABC plc has a healthy cash flow provided that the ABC plc could reach the determined number of subscriber during the period. These results demonstrate their continuing ability to improve earnings whilst building for the future.
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White Paper – Making Cash Flow Forecasts
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