Forecasting with assumptions including scenario analysis For The REJECT SHOP LIMITED

6Sales forecast assumptions

Sales forecast Assumptions

SALES FORECAST

The earnings of the Rejected shop majorly depends on the weather patterns and the amount of sales of the house equipment’s and gifts cards. The sales forecast is made of the set of several assumptions which are purely based on the company strategy as disclosed in the financial statements and the current prevailing conditions in entertainment, gifts and home industry. This paper will provide a scenario based on the assumptions which include;

  1. Optimistic

  2. Pessimistic and

  3. Most likely

The sales forecast carried out in this analysis is based on 17 year period from the year 2011 and the terminal year will be 2026. As one of the top producers of the gift cards and other home appliances including pet warmers, the main drivers for sales is the price of the commodity and the amount of sales. The total amount of sales or sales volume of previous year will help in predicting the future sales forecast. From the table above, revenue assumption is very clear as the forecasted figure largely depends on the sales of the previous years. The sales movement of the card gift and other home appliances and growth in sales, the company will start making profitability in the next few years and have three scenarios. They include;

Optimistic scenario

The optimistic scenario is based on the following assumptions

  1. The company will be able to handle increase in sales and this will increase significantly over the next few years

  2. The forecast of the home appliances and gift cards sales will increase by 5-6% annually

  3. Reject shop will find many new markets for their productions

  4. The need for gifts and entertainment will increase worldwide

Pessimistic scenario

In this cases, there are three main assumption on pessimistic assumptions,

  1. The sales growth remains constant throughout the project plan

  2. The weather patterns won’t change much in the coming years

  3. The inflation will be high hence people won’t buy gift cards

Most likely scenario

In the most likely scenario the assumptions from the calculation is that

  1. The economic growth rate will be stable throughout hence the sales will be fairly constant

  2. The sales will increase as planned and there will be no economic factors influencing sales negatively

Sales growth forecast

Based on the above scenarios, the sales forecast growth for the next 17 years can be shown in the graph below;

Forecasting with assumptions including scenario analysis For The REJECT SHOP LIMITED

The growth will shoot in year three and four but sharply fall in in five all the year to year 16 and start starting to stabilize. This clearly shows unstable economic environment that surrounds the sale of the gifts cards and other home appliances. This clearly shows a pessimistic scenario in the sales in the Reject shop. The economic slowdown will be consistent for many years after the fifth year and this simply imply decline in demand. On the optimistic sales growth is represented in the graph below

Forecasting with assumptions including scenario analysis For The REJECT SHOP LIMITED 1

The prevailing weather condition and stable economic growth for the first four years represent increase in demand and this will results to growth in sales of the Reject shop.

Balance sheet assumption

The balance sheet assumptions based on optimistic assumption of increase in ending cash sales and favorable taxes throughout project period. It further indicates most likely scenario in that from the forecasting year in 2016, the operating cash sales is fairly constant at 2.3% throughout.

Ending inventory also gives similar indication of most likely scenario which is at 23.7% throughout the time. Therefore, balance sheet assumptions are purely on the most likely assumption with stable economic environment throughout.

Operating Asset Assumption

From the analysis of the forecast, it shows the most likely scenario with constant projections. This is seem in ending PPP & E /sales ending investments and intangibles assets.

Financing assumptions

It gives a more optimistic scenario where the company will be able to finance all its operations due to increase in income and will not involve itself in taking any debt. It further implies that the company will also be able to collect all the account receivable in time without any delays. That is indicated by 0.00% Current Debt/Total Assets. This is a clear indication of unstable economic environment in the sales profitability ratios.

Return on assets

Forecasting with assumptions including scenario analysis For The REJECT SHOP LIMITED 2

The profitability of the forecast are shown in the figure above indicating the return on equity and return on net operating assets.

Dividend

From the results, the dividend declared is nil indicating pessimistic view of the assumption that the company will only break-even in the process.