Finance Homework: Exponential Smoothing and Financial Analysis

This finance assignment solution covers the application of exponential smoothing for forecasting, along with an analysis of financial statements. The assignment includes problems on calculating forecasts using exponential smoothing with different smoothing constants, calculating Mean Absolute Deviation (MAD), and analyzing income statements. The solution also addresses pro forma statements, profit margin calculations, and the determination of additional financing needs. Furthermore, the assignment explores forecasting sales, analyzing assets and liabilities, and calculating net profit margins. The provided references support the methodologies and concepts discussed throughout the solution. This assignment is designed to help students understand and apply financial forecasting and analysis techniques.

Running Head: FINANCE 0
Finance

FINANCE 1
Table of Contents
Question 1........................................................................................................................................2
Problem 8.........................................................................................................................................2
Part A...........................................................................................................................................2
Part b............................................................................................................................................3
Part C............................................................................................................................................3
Part D...........................................................................................................................................3
Problem 11.......................................................................................................................................3
Part A...........................................................................................................................................3
Part B............................................................................................................................................3
References........................................................................................................................................4

FINANCE 2
Introduction
The exponential smoothing method is the method which is utilized due to no clear trend or
seasonal pattern. This is used generally in case of the companies dealing with the oil products.
Exponential smoothing in simpler terms is a technique which is an expression used for the time
series data with the assistance of the exponential function. It acts as the low pass filters (Wu, Liu
& Yang, 2016).
Problem 3
A)
Period At Forecas
t @0.05
|A-F| Forecas
t at 0.06
|A-F|
1 32 30 30
2 14 30.1 16.1 31.2 17.2
3 41 29.3 11.7 20.88 20.12
4 30 29.89 0.11 32.95 2.95
5 29.89 31.18
sum|A-F| 27.915 40.272
n 3 3
MAD 9.31 13.42

FINANCE 3
Under the Exponential smoothing the formula used for forecasting at 0.05 value is 30+0.05*(32-
30) and further the previous value is replaced with 30 on every next value. The similar process is
followed for the process of forecasting at 0.6 using the data values.
B) For computation of MAD the formula used is summation of actual - forecasting values and
dividing the same by number of years for which it is done.
Sigma[A-F]/N
C) In case of the exponential smoothing the value chosen shall be 13.42
Problem 8
Part A
Statement of Income
Actual
Pro
forma
Sales 200000 240000
Cost of goods
sold 140000 140000
Gross Profit 60000 100000.00
Expenses
Rent 6000 6180
Utilities 8400 9240
Insurance 2000 2600

FINANCE 4
Equipment 3500 3500
Interest 10000 9000
Total
Expenses 29900 30520
Net Profit 30100 69480
Part b
The net income changed by 131% for the respective data (Yang, et al 2016).
Part C
The current profit margin of the company is 15% and 29% for the actual and pro forma year.
Part D
Assets
16000
0 80%
Liabilities
11000
0 55%
Net Capital 50000
Profit
used for
the other
purpose
30100
Addition 19900

FINANCE 5
al
Financin
g needed
The additional financing that is required is of $19900 which is required by the company
(Batselier & Vanhoucke, 2017).
Problem 11
Total
Sales Forecast
Current
Year
Percentage of Sales
(%) Sales Net
$275,000
Year
$350000
Assets
Current Assets
Cash 5694 2% 2%
Accounts Receivable 19662 7% 6%
Inventory 3381 1% 1%
Total Current Assets 28737 10% 8%
Fixed Assets
Furniture and Fixtures 5595 2% 2%

FINANCE 6
Transportation Equipment 25456 9% 7%
Total Fixed Assets 31051 11% 9%
Total Assets 59788 22% 17%
Liabilities and owner's Equity
Current Liabilities
Notes payable 15456 6% 4%
Accrued Taxes Payable 3598 1% 1%
Total current Liabilities 19054 7% 5%
Long term debt 18654 7% 5%
Total Liabilities 37708 14% 11%
Owner's Equity 22080 8% 6%
Total liabilities and owners’
Equity 59788 22% 17%
Net Income 50000
Net Profit Margin 14%
Part A
The owners took out 6% out of the business for the forecasted year and 8% for the actual year.
Part B
Net Profit Margin = Net Profit/ Sales*100

FINANCE 7
The profit margin for the next year is 14% (Hirschey, 2016).
Conclusion
From the above analysis it can be concluded that in case of the exponential smoothing the value
chosen shall be 13.42 as the highest value of the moving average will generate the high level of
supply in relation to the demand given in the data.

FINANCE 8
References
Batselier, J., & Vanhoucke, M. (2017). Improving project forecast accuracy by integrating
earned value management with exponential smoothing and reference class
forecasting. International journal of project management, 35(1), 28-43.
Hirschey, M. (2016). Managerial economics. United States: Cengage Learning.
Wu, L., Liu, S., & Yang, Y. (2016). Grey double exponential smoothing model and its
application on pig price forecasting in China. Applied Soft Computing, 39, 117-123.
Yang, D., Sharma, V., Ye, Z., Lim, L. I., Zhao, L., & Aryaputera, A. W. (2015). Forecasting of
global horizontal irradiance by exponential smoothing, using
decompositions. Energy, 81, 111-119.

FINANCE 9
References