Forecasting Future Sales of Manufacturing Firms

Abstract

This paper develops a model to forecast sales for manufacturing firms one year in advance. The methodology utilized is regression analysis. The regression model includes firm-specific variables as well industry and economic-wide factors that affect future sales and explains a considerable percentage of the variation in future sales. We find that consumer confidence index; property, plant & equipment; and advertising and research & development cost in excess of the industry average are positively related to future sales while discount rate is negatively related with sales. The model may be used by management and others (such as investors and creditors) to forecast sales one year ahead. It is not however intended to replace the users’ judgment; rather, the model is intended to add an objective dimension to the process of forecasting sales.