Budgeting and Forecasting Key Terms

Keep your finances in line by understanding basic budgeting and forecasting terms

Every business owner, investor or executive should have a complete understanding of the company's finances. This remains true even in large companies that employ an accounting team.

Being able to understand all of the terms in budgeting and forecasting statements and plans gives you an in-depth look into the company's financial situation. While some of the terms are closely related, each has its own unique meaning and contains information that is valuable in itself. For example, if you see the term 'profit margin', you must dig deeper to determine what type of profit margin you are looking at.

 

Marketing financial analysis circle

The marketing financial analysis circle is a model followed to discover if marketing strategies are beneficial to a company. Another component of the circle is finding viable alternatives to popular marketing methods and to determine if these are cost effective.
Try: The Food and Agriculture Organization website offers a tutorial on basic budgeting and forecasting methods. In this tutorial, you will find information about marketing financial analysis circle.

Contribution analysis

A contribution analysis shows a company how the cost of making products and the sales price of the products affect the company's bottom line. This includes both direct and indirect costs of making the products.
Try: You can find an explanation of contribution analysis on BusinessDirectory.com.

Financial planning

Financial planning is the process of making a plan about how to deal with every aspect of your finances. Mortgage payments, insurance payments, cash, income and investments are all part of a financial plan.
Try: Certified Financial Planner Board of Standards website offers information about financial planning, including an easy to understand explanation and some of the benefits of financial planning.

Profit margin

A profit margin is a gauge investors use to determine how a company is performing. There are three types of profit margins: gross, operating and net. Gross profit margin is how a business if faring after paying off the cost of making the product and paying off short term debts. The operating profit margin shows the efficiency of how the business is being managed. The net profit margin shows the relationship of the price of goods sold by a company to the operating costs of the company.
Try: Investopedia provides an explanation of profit margin.

Spreadsheet

A spreadsheet is a group of rows and columns that contain financial data that show you how one financial decision can affect other areas of the finances. For example, a spreadsheet can show you how decreasing the sale price of one item will affect the bottom line and management bonuses or profit sharing.
Try: WiseGeek provides information about spreadsheets, including a brief history and some sample uses for them.

DuPont model

The DuPont model is a way to determine how a business is faring financially. It combines an income statement with a balance sheet to provide a comprehensive look into the company's finances.
Try: 12 Manage provides detailed information about the DuPont model. It includes a brief history, the formula for the model and examples of the model.

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