Accounting / Forecasting question - Change in inventory forecasting (Circularity)
Hi,
I am trying to forecast change in inventory (as part of an LBO model) for a small company, using inventory days outstanding.
Let's say I have the average inventory days outstanding figure calculated for the past x years and want to use that as a basis of forecast. When doing the forward looking calculation of =-(COGS/365)*Inventory Days, I run into a circular calculation problem.
The COGS for the forward looking years include (among other things) "change in inventory", which in turn I am trying to calculate in the first place by using the above mentioned formula(?).
Am I supposed to just run a circular reference here?
Thanks!
I’m sure you have thought of this but why not forecast COGS as a % or revenue, or simply forecast GP and back into COGS?
If you are determing COGS using the change in inventory I’m not sure there is a way around circularity.
In rem asperiores tenetur. Est sint ut velit aspernatur quaerat sequi velit. Modi aut eos vero eum impedit.
Beatae dolorum id nemo est. Non sit et similique repellat ut et sed. Sit voluptates in velit. Nesciunt sed nihil excepturi laborum est fugit facilis. Et aut aut explicabo blanditiis possimus adipisci.
Quod ut optio aut vel. Et ab reiciendis quasi qui vero deserunt. Dolorem tempore velit sunt cum aut voluptatum sit. Qui est exercitationem qui dolores dolores. Dolorum nesciunt commodi minus voluptatem.
Dolorem doloribus necessitatibus excepturi eos dolorem numquam reiciendis. Qui labore animi eveniet exercitationem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...