Copyright 2000 John F.

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Copyright 2000 John F. Lacher

CPA Excel Tip and Example
Title: Forecasting Techniques

Keywords: Forecasting, Trend line, Linear Regression, Statistics, Sales, Time Series

Description: Example of applying Excel's forecasting features to the process of forecasting sales. This method
provides the user with a method of eliminating seasonal trend and the R^2 statistic to compare the fit of various
shape curves to the adjusted data.

Tip:
You can use Excel's built-in forecasting features to create a sales forecast. Use the Average formula and use moving
averages to estimate seasonal indices.

Adjust the actual data with the seasonal indices and plot the resulting data. Use Excel's trendline feature to add a
best fit line to the chart. This workbook contains an example of a linear and polynomial sales trend. You can
compare trendline R^2 values to find the best fit. R^2 is percent of variation explained by trendline -- Higher R^2
values are best -- 1=perfect fit.

After finding the best fit, use the trendline formula and seasonal indices to forecast future periods.

Guide to the Example:

1) Enter Sales in column B of Input Data Sheet
2) Recreate trendline on chart in Forecast sheet - Activate chart and click on Insert Trendline button.
Choose best fitting trendline (linear, ploynomial, etc.) by comparing R^2 value.
3) Replace formula in cell E38 with formula from trendline and copy down column E -- see examples.

Page 5
 Input - Linear

Input Data Calculated Moving Average and Seasonal

Indices Moving Average

45,000
Calculated
Moving Seasonal Average
40,000
Month Sales Average Month Index Index
1 18,917
2 19,043 35,000
3 24,647
4 24,811
5 24,977 30,000
6 19,556 24,476 6 0.799
7 19,686 24,835 7 0.793
25,000
8 33,973 24,987 8 1.360
9 34,199 25,158 9 1.359

Value
10 34,427 25,098 10 1.372 20,000
11 20,216 25,252 11 0.801
12 20,351 25,978 12 0.783
13 20,487 26,164 1 0.783 0.783 15,000
14 20,623 26,400 2 0.781 0.781
15 26,693 26,036 3 1.025 1.025
10,000
16 26,871 26,225 4 1.025 1.025
17 27,050 26,366 5 1.026 1.026
18 21,179 26,507 6 0.799 0.799 5,000
19 21,320 26,897 7 0.793 0.793
20 36,792 27,061 8 1.360 1.360
21 37,038 27,246 9 1.359 1.359 -
22 37,285 27,181 10 1.372 1.372 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
23 21,894 27,348 11 0.801 0.801 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
24 22,040 28,134 12 0.783 0.783 Sales Moving Average
25 22,187 28,335 1 0.783
26 22,335 28,591 2 0.781
27 28,908 28,197 3 1.025
28 29,101
29 29,295

Page 6
 Input - Linear

30 22,937
31 23,090
32 39,846
33 40,112
34 40,379
35 23,712
36 23,870

Page 7
 Forecast - Linear

Forecast
Seasonal Adjusted Adjusted
Month Sales Index Sales Sales Forecast
1 18,917 0.783 24,158
2 19,043 0.781 24,376 50,000
3 24,647 1.025 24,041
4 24,811 1.025 24,215
5 24,977 1.026 24,345
6 19,556 0.799 24,476
45,000
7 19,686 0.793 24,835
8 33,973 1.360 24,987
9 34,199 1.359 25,158
10 34,427 1.372 25,098
11 20,216 0.801 25,252 40,000
12 20,351 0.783 25,978
13 20,487 0.783 26,164
14 20,623 0.781 26,400
15 26,693 1.025 26,036
16 26,871 1.025 26,225 35,000
17 27,050 1.026 26,366 f(x) = 176.28x + 23592.54
18 21,179 0.799 26,507 R² = 0.98
19 21,320 0.793 26,897
20 36,792 1.360 27,061
30,000
21 37,038 1.359 27,246
22 37,285 1.372 27,181
23 21,894 0.801 27,348
24 22,040 0.783 28,134
25 22,187 0.783 28,335 25,000
26 22,335 0.781 28,591
27 28,908 1.025 28,197
28 29,101 1.025 28,402
Insert
29 29,295 1.026 28,554
formula
30 22,937 0.799 28,707 from 20,000
31 23,090 0.793 29,129 chart 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
32 39,846 1.360 29,307 here 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
33 40,112 1.359 29,508
Adjusted Sales Linear Regression for Forecast Adjusted Sales
34 40,379 1.372 29,437 Adjusted Sales
Sales Forecast
35 23,712 0.801 29,618
36 23,870 0.783 30,469
37 0.783 30,115 23,581
38 0.781 30,292 23,664

Page 8
 Forecast - Linear

Forecast
Seasonal Adjusted Adjusted
Month Sales Index Sales Sales Forecast
39 1.025 30,468 31,236
40 1.025 30,644 31,398
41 1.026 30,820 31,620
42 0.799 30,997 24,766
43 0.793 31,173 24,710
44 1.360 31,349 42,624
45 1.359 31,526 42,855
46 1.372 31,702 43,486
47 0.801 31,878 25,521
48 0.783 32,054 25,112
49 0.783 32,231 25,238
50 0.781 32,407 25,316
51 1.025 32,583 33,405
52 1.025 32,760 33,566
53 1.026 32,936 33,790
54 0.799 33,112 26,456
55 0.793 33,288 26,387
56 1.360 33,465 45,500
57 1.359 33,641 45,731
58 1.372 33,817 46,388
59 0.801 33,994 27,215
60 0.783 34,170 26,769

Page 9
 Input - Exponential

Input Data Calculated Moving Average and Seasonal

Indices Moving Average

600,000
Calculated
Moving Seasonal Average
Month Sales Average Month Index Index
1 29,726 500,000
2 37,942
3 44,129
4 40,851
5 40,442 400,000
6 35,736 50,559 6 0.707
7 38,595 55,905 7 0.690
8 32,420 60,979 8 0.532
9 50,020 65,584 9 0.763 300,000

Value
10 54,021 69,836 10 0.774
11 70,011 74,105 11 0.945
12 75,612 78,124 12 0.968
13 74,856 83,377 1 0.898 0.898 200,000
14 95,544 90,283 2 1.058 1.058
15 111,125 98,295 3 1.131 1.131
16 102,870 107,628 4 0.956 0.956
17 101,841 116,601 5 0.873 0.873 100,000
18 89,990 127,317 6 0.707 0.707
19 97,190 140,780 7 0.690 0.690
20 81,639 153,557 8 0.532 0.532
21 125,958 165,153 9 0.763 0.763 -
22 136,034 175,859 10 0.774 0.774 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
23 176,300 186,610 11 0.945 0.945 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
24 190,405 196,730 12 0.968 0.968 Sales Moving Average
25 188,500 209,959 1 0.898
26 240,595 227,349 2 1.058
27 279,831 247,523 3 1.131
28 259,043
29 256,453

Page 10
 Input - Exponential

30 226,611
31 244,740
32 205,582
33 317,183
34 342,558
35 443,955
36 479,471

Page 11
 Forecast - Exponential

Seasonal Adjusted Forecast

Month Sales Index Sales Adjusted Sales Forecast
1 29,726 0.898 33,110
2 37,942 1.058 35,853 3,520,000
3 44,129 1.131 39,034
4 40,851 0.956 42,741
f(x) = 31466.09·1.08^x
5 40,442 0.873 46,304 R² = 1
6 35,736 0.707 50,559 3,020,000
7 38,595 0.690 55,905
8 32,420 0.532 60,979
9 50,020 0.763 65,584
10 54,021 0.774 69,836 2,520,000
11 70,011 0.945 74,105
12 75,612 0.968 78,124
13 74,856 0.898 83,377
14 95,544 1.058 90,283 2,020,000
15 111,125 1.131 98,295
16 102,870 0.956 107,628
17 101,841 0.873 116,601
18 89,990 0.707 127,317 1,520,000
19 97,190 0.690 140,780
20 81,639 0.532 153,557
21 125,958 0.763 165,153
22 136,034 0.774 175,859 1,020,000
23 176,300 0.945 186,610
24 190,405 0.968 196,730
25 188,500 0.898 209,959
26 240,595 1.058 227,349 520,000
27 279,831 1.131 247,523
28 259,043 0.956 271,026
29 256,453 0.873 293,620 Insert
30 226,611 0.707 320,606 formula 20,000
31 244,740 0.690 354,507 from chart 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
32 205,582 0.532 386,682 here 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
33 317,183 0.763 415,883
Adjusted Sales Exponential Regression for Forecast Adjusted Sales
34 342,558 0.774 442,842 Adjusted Sales
Sales Forecast
35 443,955 0.945 469,915
36 479,471 0.968 495,401
37 0.898 551,536 495,168
38 1.058 595,921 630,642
39 1.131 643,877 727,919
40 0.956 695,692 664,934
41 0.873 751,678 656,528
42 0.707 812,168 574,058

Page 12
 Forecast - Exponential

Seasonal Adjusted Forecast

Month Sales Index Sales Adjusted Sales Forecast
43 0.690 877,527 605,816
44 0.532 948,145 504,087
45 0.763 1,024,446 781,318
46 0.774 1,106,888 856,225
47 0.945 1,195,964 1,129,894
48 0.968 1,292,208 1,250,657
49 0.898 1,396,197 1,253,503
50 1.058 1,508,555 1,596,450
51 1.131 1,629,955 1,842,705
52 0.956 1,761,124 1,683,259
53 0.873 1,902,849 1,661,981
54 0.707 2,055,979 1,453,210
55 0.690 2,221,433 1,533,604
56 0.532 2,400,201 1,276,080
57 0.763 2,593,355 1,977,882
58 0.774 2,802,053 2,167,508
59 0.945 3,027,546 2,860,292
60 0.968 3,271,185 3,166,000

Page 13