A sales projection is a tool which a business can use to help in planning for the future
A sales projection is a tool which a business can use to help in planning for the future. It helps a business by setting goals and gives them a general direction on how to get to those goals. However, if the sales projection is not reasonably accurate, it can be devastating in many ways. For example, if the sales are projected to be higher than they actually are, the production of inventory could be overly increased, along with the labor force. This could mean massive leftover inventory and raised costs for the company. A company uses the sales projections along with other historical data to create future budgets and make future plans. The pro forma income statement is formed based on sales projections and the production plan (Block et al., 2019). These statements are similar to the basic income statement, except if projects the future instead of tracking the past. In short, a company must have a sales projection first, in order to complete the pro forma statements, which lead to the company’s plans for the future.
Deere & Company’s reports for the first quarter of 2020 reported a rise in net income, but the sales number had actually lowered. This was in comparison with the first quarter of 2019. The company’s CEO, John C. May, says that there was a small rise in sales within the farming sector due to the stabilization of farming in the U.S. (John Deere, n.d.). Sales were down in Construction & Forestry, as well as in the Agriculture & Turf, and Financial Services. While the Financial Services saw decline due to administrative and general expenses, the other areas saw a decline in sales due to lower shipment volumes and reduction of production (John Deere, n.d.).
When looking to the future, there are numerous issues that Deere & Company will face which will make creating sales projections difficult. The slow down in construction activity and a lack of demand are just two of the many things that must be analyzed. With products in many different markets, the list of uncertainties is too long to list in this discussion. The list does include things ranging from weather conditions and livestock prices to real estate values and labor supply. Of course, the spending patterns of consumers and the general economic conditions of the global market will always be factors that have an effect on a company’s sales (John Deere, n.d.). There are many “what-ifs” to consider when creating a sales projection. This has to be especially hard for a new business with no historical data to analyze for help.
Block, S. B., Hirt, G. A., & Danielson, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com/ (Links to an external site.)
John Deere. (n.d.). Investor relations (Links to an external site.). Retrieved from https://investor.deere.com (Links to an external site.)
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