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1.0 Introduction
Task-1
2.1 Apply forecasting techniques to make cost and revenue decisions in
An organisation……………………………………………………………..………………2
2.2 Assess the sources of funds available to an organisation…………………….….5
Conclusion…………………………………………………………………………………..6
References…………………………………………………………………………………..7
Tables
Table 2.1.1 NPV Smart Approach Ltd New Project……………………………………..3
Table 2.1.2 NPV Project promoted by Scottish govt……………………………………4
Chart
Chart 2.1.1 NPV analysis Smart Approach Ltd New Project……………………………4
Chart 2.1.2 NPV analysis Project promoted by Scottish govt…………………………..5
1.0 Introduction 简介
本报告是基于智能方法有限公司-一个高街时尚零售商。在这里，我要讨论的预测技术，使成本和收入决定在智能方法有限公司，我也将讨论有关资金来源的同一组织。
The following report is based on Smart approach ltd- a high street fashion retailer. Here I am going to discuss about forecasting techniques to make costs and revenue decisions in Smart approach ltd. I will also discuss about the sources of funds available for the same organisation.
Task-1
2.1 Apply forecasting techniques to make cost and revenue decisions in an organisation
It is very important to understand forecasting techniques because it gives the management an idea to take effective cost and revenue related decisions for the future.
Historical analogy: This is a forecasting technique which is qualitative by nature and based on perceptions, estimates and opinions. Organisations use this method at the time of forecasting demand for new product.
Cross-impact matrix method: This technique identifies that an incident of an event in reply affect the probabilities of another event. Probabilities are usually allocated to show the prospects of an event in the existence and nonexistence of other events. The occurring results of mutually connected framework can be utilising to evaluate the relationship of the parts to each other and inside the whole system. The merits of this method are that it drives the people who forecasts and policy makers to see the relationship between system components. Smart approach ltd is related with its different departments in business so it is important for the management while forecasting to link all the departments on the basis of demand, sales, costs and operations.
Scenario: This forecasting technique is descriptive by nature and explains positive events. This method also identifies the internal relationship of the various parts of the system. It shows the impact of other parts and the system al together. This technique emphasises events like changes in customer’s preference, new technology, changes in population etc. It is good in the case of long term future prediction.
Smart approach ltd is a high street fashion retailer. They are going to start a new project in Scotland where they will launch a new product which will generate £250000 revenue every year for five year. The production cost will be £200000 for the same without taking in to consideration of any promotional cost and other financial interests and expenditure. Funds are available by issuing shares and from a bank loan with 10% interest rate per year.
We have to forecast the project based on above information to find out that whether the project is feasible or not and this exercise will help us to take cost and revenue related decisions in the future. The best way of forecasting the project is a NPV analysis.
Method of calculating NPV (Net Present Value) is as follows
Ct = net cash inflow during the period
Co= initial investment
r = discount rate, and
t = number of time periods
NPV for the above project has given below
Smart Approach Ltd New Project
The above analysis can be better understood by the following chart.
Chart 2.1.1 NPV analysis Smart Approach Ltd New Project
The above analysis shows that at 3% rate the Net present value will be £673424.13 and at 10% the same will be £532629.42 which I think is feasible and smart approach ltd can go ahead with the project.
Smart approach ltd will compete with a public sector venture promoted by the Scottish government which will generate £200000 over 4 years and the project will cost 150000 to run. The project is funded by the Scottish government at a 3% interest in any initial borrowing. The NPV analysis for this project has given below.
It can be better understood by the following chart.
Project Promoted By Scottish Govt.
 
Chart 2.1.2 NPV analysis
The NPV of the above project at 3% is £194174.76 and at 10% is £181818.18 which is not good,
So from the above analysis, it is clear that the project selected by the Smart approach ltd is good. It has good chance to make huge amount of profit in the future.
2.2 Assess the sources of funds available to an organisation
Companies produce and sales goods and services to make profit. So profits are the most basic sources of funds for an organisation. Organisations can borrow money from bank privately with an interest rate. Organisations can raise funds by selling shares which is popularly known as equity funding. The best part of this kind of funding is that the shareholders don’t ask for interest but they expect a dividend at the end of the year. There are other sources like financial leasing, higher purchase which is a form of instalment credit, government assistance, venture capital, franchising etc.
Smart approach ltd is funding this specific project by issuing new public shares and lending money from bank at an interest rate of 10% per year. As an established public limited company it is easy for Smart approach ltd to raise funds by issuing public shares. Company’s portfolio and reputation in the market for the company is very well and people will buy their shares without having a second thought. So I personally think that funding by issuing public shares is a good decision. Borrowing money from bank is always gives an extra burden to any company. At first they will raise the funds by issuing shares and after that whatever the fund will be lacking, they will fill it up by borrowing money from bank in 10% interest rate. The fund needed for the project is more than £200000 which is just the production cost. We haven’t taken into account the promotional costs, expenditure, interests and other operational costs yet. I think that by issuing shares, we can raise most of the fund for the project. So we could have used our retained incomes which means earned profits from earlier businesses instead of bank loan.
Conclusion 结论
From the above discussion, it is clear that forecasting techniques are very important to make cost and revenue decisions in an organisation. The project selected by Smart approach ltd is feasible enough for implementation.
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