A Novel Application of Vague Set Theory in Company’s Financial Forecasting
Financial forecasting helps to develop a pro forma financial statement for the company’s strategic goal and objectives. A common method for developing a pro forma financial statement is the percentage of sales method. The percentage of sales method begins with a forecast for the growth rate of company’s sales. As a bestpractice, a financial forecasting panel composed of financial expert and/or senior management is called on to derive products’ sales growth rate and further to forecast compound sales growth rate of company’sproduct portfolio based on their precious knowledge or experience of the industry. Thus the main purpose of this study was to propose a vague set based financial forecasting method to the financial forecasting panel to forecast sales growth rate for company’sproduct portfolio under vague and uncertain environment. In this study, by using the author’s polling method and score function, a new vague set based financial forecasting method is proposed to the financial forecasting panel for forecasting company’s sales growth rate employing a vague set based forecasting value sheet. The forecasted values allocated to the products in the forecasting grade sheet can be regarded as a set of vague values, where each element in the universe of discourse belonging to a vague set is represented by a vague value in [0, 1]. A numerical case study was also conducted to show the proposed method is useful in: (1) providing the financial forecasting panel a collective evaluation method for conducting company’s financial forecasting, (2) deriving company’s individual product sales growth rate, and (3) deriving compound sales growth rate of company’s product portfolio.
Keywords - Financial Forecasting, Product Portfolio, Sales Growth Rate, Vague Set Theory