please respond to the 2 classmates with 100 words each
student 1
Financial projections present an opportunity in variant scenarios to determine which is the most viable and beneficial to the company. With an economy that is unstable and societal views that ever-shifting, stakeholders are seeking more secure investment opportunities. Uncertainties fosters anxiety, heighten levels of risk, and hesitations in decision-rendering.
First, bring the key stakeholders together in an informal setting, where their concerns can be freely expressed and addressed. In this setting, the stakeholders can feel they are a part of the decision process and can openly discuss interests. The analyst should provide the background information in a transparent format; thus, the audience is fully aware of the status. The analyst then presents the potential opportunities, like a timeline or chart that spans from minimum to maximum risk (Saffo, 2017). The analyst should disclose the sources (more than one) of the data used to mitigate the risk factors for each potential opportunity. Multiple sources of data denote due diligence in research for finding every possible opportunity of action. The analyst must be able to convey the process, and if possible, quantify the uncertainties into a format that can be understood. This can be done by utilizing examples of common daily routines or analogies. The analyst should not strongly focus on the uncertainties; rather, it should be a balanced presentation. With each risk/uncertainty, communicate the potential advantages of progression, like the generation of revenue/value, or benefit to the stakeholder.
With openness and transparency in the discussion, the stakeholders may be able to understand the decision-making process, understand the potential opportunities for the benefits to the company as well as stakeholders, and understand the various levels of the uncertainties.
References
Measure Uncertainty in Financial Reporting: How Much to Recognize and How Best to Communicate It. U.S. Securities and Exchange Commission. Retrieved from https://www.sec.gov/about
Saffo, P. (2007). Six Rules for Effective Forecasting. Harvard Business Review, Issue July – August 2007. Retrieved from https://hbr.org/2007/07/s
student 2
I have been involved in grant management and budgeting. Most of the times, the budget does not match the intended amounts, sometimes resulting in an overbudget and sometimes underbudget. Likewise, financial projections can be wrong because we live in a world in which events are not preordained and no amount of action in the present can influence future outcomes (Saffo, 2007). I believe that managers or financial analysts should communicate major specific uncertainties that might affect financial projections. These uncertainties can include events that are internal or due to the company’s management or policies. On the one hand, external events include oil price increases, changes in the currency exchange rate, political situation in major trading partners, and economic recession. Whether internal or external, these events can result in missed financial projections. Many companies big and small often miss their financial projections, if the miss is good it results in a positive outcome. On the other hand, if the miss is negative, the consequences can be dire. For instance, Netflix recently posted a weaker than expected second-quarter subscriber numbers and revenue which sent its stock into a sharp dive (MarketWatch, 2018).
Certainly, it is important to be honest with one’s audience and explain some of the factors or events stated above that lead to uncertainties in financial projections. However, managers should not be pressured to take extreme measures to address missed projections. For example, Southwest Airlines CEO Gary Kelly recently stated that company was not going to introduce baggage fees, ticket-change fees and assigned seating despite calls from stockholders to find new ways to increase revenue since the company missed its financial projections (Gilbertson, 2018).
References
Gilbertson, D. (2018). Southwest CEO: ‘Let me be very blunt,’ no assigned seats. Retrieved from https://www.usatoday.com/
MarketWatch. (2018). Netflix stock slammed after earnings, as subscriber growth and revenue fall short. Retrieved from https://www.marketwatch.c
Saffo, P. (2007). Six Rules for Effective Forecasting. Retrieved https://hbr.org/2007
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Response: Student One
One aspect I liked about the post from my peer is the assertion that financial projections can be used when making decisions that may affect the well-being of the company. Such decisions include capital budgeting decisions and product development. The student also clearly articulates the main reasons why investors fear investing in uncertain business ventures. Uncertainty is associated with cash flows and financial projections that are difficult to estimate.
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