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Chapter 4 Time Series Analysis and Forecasting

The document provides an overview of time-series analysis and forecasting techniques in accounting and finance, emphasizing its importance for decision-making and resource allocation. It discusses various forecasting methods, such as moving averages and ARIMA models, and their applications in budgeting, stock valuation, and bond pricing. The document also highlights challenges like data volatility and unforeseen events that can impact the accuracy of forecasts.

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TENGKU INTAN TENGKU IZHAM
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6 views10 pages

Chapter 4 Time Series Analysis and Forecasting

The document provides an overview of time-series analysis and forecasting techniques in accounting and finance, emphasizing its importance for decision-making and resource allocation. It discusses various forecasting methods, such as moving averages and ARIMA models, and their applications in budgeting, stock valuation, and bond pricing. The document also highlights challenges like data volatility and unforeseen events that can impact the accuracy of forecasts.

Uploaded by

TENGKU INTAN TENGKU IZHAM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Time-Series

Analysis and
Forecasting in
Accounting and
Finance
OVERVIEW AND TECHNIQUES
ASST PROF MS TENGKU NUR SHAHRUL HIZAM
Introduction to Time-Series
Analysis and Forecasting

 Define Time-Series Analysis: A statistical


technique that evaluates patterns over time in
sequential data.
 Importance in Accounting & Finance: Enables
better decision-making and resource allocation.
 Types of Financial Forecasts: Cash flows, earnings,
stock prices, etc.
Accounting Time-Series

 Definition: Historical accounting data arranged


sequentially over time.
 Examples: Revenue, expenses, profit, and assets
over months, quarters, or years.
 Purpose: Understand trends, seasonality, and
cyclical behavior in financial data.
Behavior of Accounting and
Financial Time-Series

 Overview of Evidence on Patterns:


 Trends: Long-term upward or downward direction.
 Seasonality: Regular, periodic changes (e.g.,
quarterly sales).
 Cyclicality: Fluctuations tied to economic cycles.
 Examples of Financial Series Behavior: Stock
prices, market indices, and company earnings.
Forecasting Accounting and
Financial Numbers

 Common Forecasting Methods:


 Moving Averages: Smoothing past data to predict
future values.
 Exponential Smoothing: Gives more weight to recent
data.
 ARIMA Models: Autoregressive Integrated Moving
Average for complex time-series patterns.
 Importance: Forecasts assist in budgeting,
financial planning, and investor relations.
Management and Analyst
Forecasts for Stocks and
Bonds
 Types of Forecasts
 Management Forecasts: Company management
projections for revenues, earnings, and expenses.
 Analyst Forecasts: External security analysts’
predictions on stock/bond performance.
 Impact on Market: How forecasts affect investor
sentiment and stock/bond valuation.
Share Prices, Fundamentals,
and Earnings Forecasts

 Relationship Between Fundamentals and Stock


Prices:
 Fundamentals include earnings, P/E ratios, dividends,
etc.
 Forecasted Earnings Impact on Share Prices: Positive
forecasts may increase demand.
 Key Models: Discounted Cash Flow (DCF),
Price/Earnings Ratio.
Application of Time-Series
Analysis in Finance

 Examples of Forecasting in Practice:


 Budget planning based on sales forecasting.
 Stock valuation models using past performance
and earnings forecasts.
 Bond pricing based on interest rate trends and
credit risk.
Challenges and Limitations of
Time-Series Forecasting

 Volatility: Financial data can be highly volatile and


difficult to predict.
 Unforeseen Events: Economic shocks (e.g.,
pandemics, wars) disrupt forecasts.
 Data Quality: Inconsistent or incomplete data can
lead to inaccurate predictions.
Conclusion

 Summary of Key Points:


 Importance of time-series forecasting in
accounting and finance.
 Various forecasting methods and their
applications.
 Impact of forecasts on stock/bond markets.
 Final Thought: Forecasting, while complex, is
essential for informed financial decision-making.

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