Forecasting is the process of combining information about the firm obtained in the preceding stages of the analysis; specifically during industry, strategy, accounting and financial analysis. Importantly, it should recognize the opportunities and constraints on future performance imposed by the economic environment, and the strategies being employed by the firm. Given the nature of forecasting, and the inherent uncertainty of future events, it is suggested that attention is focused only on the major components of the financial statements.
Making a short-term income statement forecast, such as one year ahead forecast, is usually a straight forward extrapolation of recent performance. First, the company is unlikely to effect major changes to its operating and financing policies in the short term. Second, the beginning of the year balance sheet for any given year will put constraints on operating activities during that fiscal year. For example, inventories at the beginning of the year will determine to some extent the sales activities during that year. In another word, the above shows that the asset turns for a company do not usually change significantly in a short time, sales in any period are too some extent constrained by the beginning of the period assets in place in the company’s balance sheet. Therefore I assume that sales will grow at 4.5% (average sales growth rate for the past years) (Appendix 4) this is marginally lower than the 4.7% sales growth that company achieved in 2009. It is because an expectation of slowing growth in the market that offset the possible increases in the sales, leading to an overall slowdown. However, we also do not overlook the positive side that the economies of scale of WOW can easily let the new entrants initially suffer from a cost disadvantage, therefore, WOW still can sustain its sales growth in future period.
The second key assumption is asset turnover, the asset utilization, and it should be very