The last section covered ratio-based forecasting in general. A specific case is worth highlighting separately, due to its frequent use: The Sales-Days’ Equivalent method. In this method, when an item is to be forecast as a proportion of Sales Revenue, the calculation is not defined through an explicit ratio of the sales (such as 10%), but by turning this ratio into a number of days (i.e. by multiplying the ratio by 365 or the number of days in a year). Thus “10% of annual sales” would be 36.5 days’ equivalent.
This type of calculation is often used for “stock” items, such as:
- The value of invoices outstanding (owed by customers) at any point in time.
- The inventory of finished goods at any point in time.
(These “stock” items have a value at a particular point in time, unlike (for example) Sales Revenues, which is a figure associated with a time period i.e. is a “flow” item).