Best resources for projecting sales?
I just interviewed at a PE shop w/ $200MM in capital; their typical deal size is $20M - always private companies.
One question threw me off a bit. I was asked, "imagine you were examining a company making widgets in the western US. What resources would you use to help forecast their future earnings?"
I mentioned that 1) it is was worth looking at analyst reports of public companies in that sector, but that that info would have to be discounted b/c of the difference b/w public and private, and 2) talking to management hear their projections, and 3) learning their client base and speaking with clients.
How would you respond?
I don't know anything about projecting sales, but here's my guess:
First ask, where are they selling their widgets and wherever they're selling, examine the past relationship between sales growth and GDP growth of the region. If there's a relationship, you could use GDP forecasts to forecast the widget sales.
I would also look into what research is out there for the growth of the widget market. Assuming the company keeps its market share, you can use that as a proxy for sales growth.
I'd also look into historical growth rates of the company. If it's a mature company, I would figure historical growth rates (given they aren't too volatile) are a good estimate. If it's a young company, I'd find mature companies in the same or in a related business and examine their historical growth rates. Then I would model the sales growth of the company to converge on the historical growth of the mature companies over time.
Interested to hear what others have to say
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