EVALUATION OF FINANCIAL FORECASTING METHOD OF HORIZON ADDIS TYRE SHARE COMPANY

Abstract

The process of estimating the funds requirement of a firm and determining the sources of funds is called financial planning. Financial planning indicates a firm’s growth, performance, investments of funds during a given period of times usually three to five years. It involves the preparation of projected profit and loss account, balance sheet and funds flow statement. Financial planning helps a firm’s financial manager to regulate flow of funds. Benefits of financial forecasting are: it identifies advance actions to be taken, develop a number of options in various areas that can be exercised under different conditions and forecast what is likely to happen in the future and hence in avoiding surprises. The objective of this study is to evaluate the financial forecasting method of Horizon Addis tyre Share Company and to recommend the best possible method. In this study the methodology followed will be exploratory as well as descriptive approaches. To achieve the research objectives, relevant data needed for analysis were collected through interviewing different Horizon Addis Departments and major importers of tyre. The data collected is analysed by qualitative and quantitative analysis technique. The result of the study indicates that Horizon Addis tyre forecast its sales based on opinion of sales department. They decide the desired level of market share in each category so that they can forecast sales of each category. By adding the forecasted sales in each category they arrive at annual sales forecast. The problem with this forecasting method is that the forecasters become optimistic or pessimistic about the market condition. Finance department prepare the forecast of material requirement based on actual order for 6 months and 10% add up to the last order price for the remaining 6 months. The forecasting method used resulted in significant difference between the plan and the actual result. In 2008 it was 85% of the plan, in 2009 it was 70% of the plan, in 2010 it was 83% of the plan and 2011 it was 125% of the plan.