Financial Modelling and forecasting Essay Example | Topics and Well Written Essays - 1000 words

Financial Modelling and forecasting - Essay Example They are used for propose of measuring the performance of the firm and also to measure hoe stable is a firm financially. They are also used for future planning, determining whether a firm is able to borrow loans and service them, and also evaluating the performance of the firm under different models. Most models are based on sales volume This paper will seek to analyze the financial statement of JB Hi-Fi by use of historical data to predict the future.I will therefore forecast the years 2013, 2014 and 2015 using the year 2012 as my base year. Ratio analysis of relevant sales ratios will be used for the analysis. Financial statement analysis is the use balance sheet and income statement data to come up with values for financial interpretation and identification of the strengths and weaknesses of an organization (Stickney et al., 2006). Various techniques of financial statement analysis are: trend analysis, comparative statements, common size percentages, ratio and fund analysis as well as changes in working capital changes (Libby et al., 2004). For the purpose of analyzing JB Hi-Fi, relevant sales ratio analysis will be undertaken. For a successful financial analysis, comparison has to be made using consistent percentages through the years of analysis. The use of the sales ratios to analyze the years will reveal their similarities, trends, as well as differences in the company (Palepu & Healy, 2007). As Gregory (2008) notes, the stakeholders of the information contained in a financial statement include, potential investors, creditors, managers, shareholders, the government and creditors and they require the information for different reasons. Use of historical data is a major limitation of ratio analysis as it is therefore assumed that it reflects on the future trends whereas no one could be certain of the future (Palepu & Healy, 2007). Resvine et al (2004) explains that another limitation of using financial statements in analysis is that GAAP allows