Lesson 4 Entrep

Entrepreneurship
Lesson 4
Learning Competencies
Forecast the revenues of the business;

1
Forecast the costs to be incurred; and

2
Compute for the Profit and loss.

3
Forecasting
Market trend and past data are significantly valuable in
predicting the future and pathways of an enterprise.
Forecasting refers to the usage of historical data as inputs to
make informed estimates that are predictive in determining the
direction of future trends.
Budget
Budget is an estimation of revenue and expenses over a specified
future period of time and is usually compiled and re-evaluated on a
periodic basis.
An effective forecast allows for improved decision-making in

maintaining fiscal discipline and delivering essential community services.
2 Types of Forecasting
1. Bottom-up forecasting
⮚ A method of estimating a company’s future performance by
starting with low-level company data and working “up” to
revenue.
⮚ This methods starts with detailed customer or product
information and then broadens up to revenue. This guide will
provide examples of how it works and explain why it’s
commonly used in financial modeling and valuation.
2 Types of Forecasting
2. Top-down Forecasting
⮚ A method provides a projection of revenue by multiplying the total
addressable market (“TAM”) of a given company by an assumed market
share percentage.
Forecasting Revenue and Expenses for Business
Revenue
⮚ the money generated from normal business operations,
calculated as the average sales price times the number of units
sold.
⮚ It is the top line(or gross income) figure from which costs are
subtracted to determine net income.
Forecasting Revenue and Expenses for Business
Expenses
⮚ expense is the money spent, or costs incurred, by a business in their
effort to generate revenues. These are regular payments required to
maintain assets/property.
Classification of Cost & Expenses:

a. Variable Cost
b. Fixed Cost
c. Cost of Goods Sold (COGS)
d. Operating Expenses (Administrative and Selling Expenses)
Classification of Cost & Expenses
1. Variable costs are expenses that vary in proportion to
the volume of goods or services that a business produces.
2. Fixed cost is a cost that does not change with an
increase or decrease in the amount of goods or services
produced or sold.
Classification of Cost & Expenses
3. Cost of Goods Sold (COGS) – the cost of acquiring raw
materials and turning them into finished products. It doesn’t
include selling and administrative cost incurred but purely a
production expense.
4. Operating Expenses (Selling and Administrative) – expenses
which are related to selling goods and services such as salaries,
advertising, and shop rent among others.
Revenue and Expenses Forecasting Method
A revenue and expense forecast is a prediction or

estimation for the next period on how much money your
enterprise is likely to bring in and spend to generate profit.
This allow you to know how much money will be spent, and
what will be your margins afterwards.
Forecasting Revenue Methods
1. Straight line method
⮚ one of the simplest and easy-to-follow forecasting methods. It uses
historical figures and trends to predict revenue and expense growth.
2. Moving Average
⮚ are a smoothing technique that looks at the pattern of a set of data to
establish an estimate of future values. The 3-month and 5-month
moving average are the most common types.
2. Moving Average Example
To perform a moving average forecast, the revenue data should be placed
in the vertical column. Create two columns, 3-month moving averages
and 5-month moving averages.
Computation of Profit and Loss
Profit
⮚ means success for a business.
⮚ describes the financial benefit realized when revenue generated
from a business activity exceeds the expenses, cost, and taxes.
Net Loss
⮚ A net loss is when total expenses (including taxes, fees, interest,
and depreciation) exceed the gross income or revenue produced
for a given period of time.
Profit
Profit = Total Revenue – Total Expenses
Example: Jake wants to find out how much money they’ve made in their
dog walking business.
Total Revenue : Php 10,000
Direct costs, such as dog treats: Php 1,000
Indirect costs, like posters and flyers: Php 500
Profit = Php 8500

Profit
Profit = Total Revenue – Total Expenses
Example
400,000
600,000
180,000
420,000
370,000
Example
From the example, the following additional data were given for the 2021 operation. Sales
are expected to increase by 30%, cost of goods sold remained to be 40% of sales, operating
expenses increased by 80,000, and interest expenditure remained the same.
a. Compute for the forecasted sales revenue for the year 2021.
b. Compute for the Cost of Goods Sold for the year 2021.
c. What is the total operating expenses for the year 2021?
d. Compute for the forecasted profit for the year 2021
2020 2021
Sales 1,000,000 1,300,000
Less: Cost of Goods Sold 400,000 520,000
Gross Profit 600,000 780,000
Less: Operating Expenses 180,000 260,000
Operating Income 420,000 520,000
Less: Interest Expenditure 50,000 50,000
Net Profit / Loss 370,000 470,000
Thank you!
Have a great day ahead.

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Entrepreneurship

Forecast the revenues of the business;

Forecast the costs to be incurred; and

Compute for the Profit and loss.

An effective forecast allows for improved decision-making in

Classification of Cost & Expenses:

A revenue and expense forecast is a prediction or

Profit = Php 8500

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