Financial Statement Projection-AFN : Sales Projection Evaluation of Investment Project

for Manufacturings Sectors

A sales projection is the amount of revenue a company expects to earn at some point in
the future. It's a prediction that is synonymous with a sales forecast. Both help determine the
health of a company and whether sales will trend upward or downward. Small companies use
various input to determine sales projections. The initiative usually commences in the sales
department. There are certain inherent advantages to calculating and using sales projections.
A manufacturing company requires efficient use of inventory, equipment, and personnel
to develop its products. A company uses the following financial ratios to evaluate its business.
These ratios can also be used to gauge the appropriateness of operations and to determine how
well the manufacturing process is going. These financial ratios are equally useful to an investor
wishing to gain a deeper understanding of a manufacturing company.
Inventory Turnover
The inventory turnover ratio measures the effectiveness of a company’s manufacturing
process. This ratio shows how many times a company sells and replaces its inventory over a
specific period of time. It is measured by dividing the cost of goods sold by the average balance
in inventory. Companies can use this ratio to make better decisions about their pricing,
manufacturing, marketing, and new inventory orders.
An investor should maintain a watchful eye for a turnover ratio that is high, as a low
calculation is an indicator that a manufacturing company is handling too much inventory. This
places the manufacturing entity at a greater risk for inventory obsolescence or theft of company
property.
Maintenance Costs to Total Expenses
A manufacturing company may utilize equipment or machinery during the production
process of its goods. A critical measurement of the sustainability of long-term operations is
comparing repair and maintenance costs to total expenses.
A low proportion of repair costs signals one of two things. First, a company has in place
durable fixed assets that don't require much ongoing maintenance. Second, a company may elect
to simply replace equipment with newer, more reliable heavy machinery. In either case, an
investor gains insight regarding management's long-term strategic planning to implement
available technology.
Total Manufacturing Costs Per Unit Minus Materials
A manufacturing company incurs numerous expenses while developing and
manufacturing a product. Although the direct materials of the product are easily traceable, the
numerous other factors and charges that go into a good may not be as easy to identify. Therefore,
this financial metric divides the total manufacturing costs, not including direct materials, by the
number of units produced. An investor can utilize this figure by determining how much overhead
is required to produce a good and how efficient a company’s process is compared to other
entities.
Manufacturing Costs to Total Expenses
 A manufacturing company incurs expenses while producing a product as well as indirect
costs needed to operate the business. From an investor’s standpoint, it is more desirable to see a
majority of costs directly tied to production as opposed to other expenses, including supervisor
salaries or building rent. Manufacturing costs to total expenses is a financial metric that measures
this proportion. A higher calculated result indicates more expenses are attributable to costs
directly needed to manufacture the product.