Business Forecasting

Business Forecasting

According to Tuovila (2020), businesses apply forecasting to predict their success in the future. To forecast, analysts rely on a company’s historical data. Businesses use forecasting to determine how they allocate their budget and plan their expenses for a given period. Also, investors benefit from the events resulting from a forecasting exercise. Crucial events such as price expectations help investors determine whether the price of a company’s stocks will increase or decrease. Also, the process provides essential insights to companies that must make long-term operations plans.

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Analysis and Recommendations

Intel and NVIDIA are leading manufacturers of graphics processing units (GPUs) for computers and laptops worldwide. Although the two companies manufacture related products, they are worlds apart regarding operations and performance. A significant difference between the two is the target audience. Intel Company targets the regular low-end consumer base, whereas NVIDIA targets high-end computer users.

The Metrics/Trends That Are Most Critical For Forecasting Future Performance and For Budgeting

The income and operational performance statements represent some of the most critical metrics used to measure and forecast the future performance of a business.

The Company With The Stronger Income Statement

A comparison between Intel and NVIDIA reveals that Intel has a stronger income statement. One of the criteria used to determine the strength of the income statement is that, in 2021, Intel closed with a revenue of 79,024, whereas NVIDIA closed with a revenue of 16675. Also, Intel’s operating income exceeds NVIDIA’s active income by far, indicating a more substantial income status.

The Company With The Stronger Cashflows

When it comes to cashflows, Intel still performs better than NVIDIA. Firstly, Intel has a higher receivable turnover than NVIDIA. For instance, in 2021, the receivable turnover for NVIDIA is 8.16, while that of Intel is 9.73. Another measure of cashflow performance is based on day sales outstanding, where NVIDIA has higher day sales unique than Intel.

The Company With The Stronger Operating Performance

Regarding operating performance, Intel still turns out to be the best performer. One of the indicators of operational performance is the gross margin. For instance, in 2020, NVIDIA recorded a gross margin of 62%, while Intel recorded a gross margin of 56%. That is an indication that Intel has a better operating performance than NVIDIA. Another indicator of operational performance is based on fixed asset turnover. Collectively, these performances forecast better performance by NVIDIA in the future.

Why the Metrics/Trends in the Data Sets Above Are So Critical and Their Reliability as Predictors of Future Performance

            The metrics above are crucial in running a business since they help managers allocate budgets efficiently and forecast the future performance of different departments. These metrics also provide insightful information to investors who intend to purchase the stocks of a given company (Parmenter, 2020). For instance, a business with a lower gross margin benefits from reduced operational costs since such a business puts in strategies to reduce wastage. Another important metric is the net margin, which can help investors determine a company’s profitability and, hence, its overall financial health.

The metrics used in forecasting and budgeting ought to be reliable to form a basis for organizational decision-making. For instance, the tools that measure operating performance help businesses cut unnecessary expenses to maximize revenue. Monitoring gross margin, for example, will help a business eliminate processes that lead to wastage.

References

Morningstar. (2022). NVIDIA Corp (NVDA) Operating Performance – XNAS | Morningstar. Www.morningstar.com. https://www.morningstar.com/stocks/xnas/nvda/performance

Parmenter, D. (2020). Key performance indicators: developing, implementing, and using winning KPIs. John Wiley & Sons, Inc.

Tuovila, A. (2020). Forecasting Definition. Investopedia. https://www.investopedia.com/terms/f/forecasting.asp#:~:text=Forecasting%20is%20a%20technique%20that

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In the first two assignments, you looked at (1) how NVIDIA (NASDAQ: NVDA) and Intel (NASDAQ:
INTC) are positioned to take advantage of opportunities and manage risks, and (2) how well each is
currently working on their performance. As part of this analysis, you identified potential areas for improvement
and considered whether a merger or acquisition could strengthen their financial performance.
Based on your insights and recommendations, Buffett is now asking for an assessment of the future of these businesses. To deliver this, you must accurately forecast cash flows (the
money that comes in and goes out). Like any predictions, these forecasts
require collecting and analyzing reliable data, including leading indicators in the broader economy and the market forces that impact competitive dynamics. This analysis will enable you to make smarter
decisions about planning for the future to maximize returns, minimize risks, and beat the
competition.

Business Forecasting

Instructions
For this assignment, you will continue to use the published data from the most recent annual reports you
have been studying, as well as analyst reports and other resources available on the Internet.
A. Complete the Assignment 3 Worksheet to assemble and assess your working capital forecasts.
The guidance for this is found on pages 137-169 of The CFO Guidebook.
B. Summarize your Analysis and Recommendations by addressing the following questions:
i. Which metrics/trends are most critical for forecasting future performance and budgeting?
To answer this, you must include an analysis of past trend performance and key forecast indicators’ applicability and reliability. In your response, consider:
a. Which company has the stronger income statement? Explain.
b. Which company has the more robust cash flows? Explain.
c. Which company has the more robust operating performance? Explain.
ii. Why are the metrics/trends in the above data sets critical? How reliable are they as
predictors of future performance?