ShmoopTube

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Finance allah shmoop what is forecasting one better than three

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casting Okay so forecasting in a financial sense isn't all

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that different from the crazed witchy ramblings of a medium

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in a say aunts divine ing your future dating life

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not necessarily on tinder which she and tones will be

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cloudy with a chance of rejection Our company's forecast future

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revenues and profits as driven by sales volumes and usually

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and the pricing of whatever products they're moving out the

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door Why like why bother Well you sell so many

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units of your product what can you do about it

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Well in practice there's plenty you can do about it

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Let's say you won huge discounts and extruded plastic volumes

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for your sneeze guard business The snot thickens any way

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at all that you get in return for ordering five

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years supply Your supplier loved knowing well in advance what

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the demand would be for their extruded plastic so that

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it could negotiate with its unions It's plastic mining contracts

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its natural gas supplier teo melt the plastic and so

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on So in return for a lot of commitment came

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a lot of discounting You've now committed to buy five

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years worth of extruded plastic supplies no matter what Like

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twenty five tons this year thirty tons next thirty five

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the next and so on But after year to the

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economy softens and buffets have decided to cave to the

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germs They aren't just buying enough sneeze guards Toe warrant

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your commitment of thirty five tons of extruded plastic Well

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what can you dio a cry Yes you always do

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that Be wine and blame washington That's a good one

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that always works Or see Spend money on marketing and

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discounting to just quote get through it unquote So yeah

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the answer to see you're on the hook for thirty

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five tons no matter what So rather than have it

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just pile up in the back of a factory you

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lower prices and spend a bit more on marketing And

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instead of only needing a twenty seven tons that the

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existing market would have had you send out the door

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you stimulated demand Five tonnes worth They now have thirty

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two tons needed Teo get sent out for snot guards

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and yes that three tons less And you really wanted

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to sell But it's not terrible You don't go bankrupt

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in three tons of plastic fits right here in the

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back of the factory yard Thing neither Yeah that stuff

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is heavy So through forecasting which letyou know very early

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the softness in the market demand for your sneeze guards

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you were able to stave off what could have been

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a calamitous slow down or even shutdown bankruptcy or whatever

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in production Yeah and that's nothing to sneeze at Gross

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