Identifying Long Term Trends Essay

1262 words - 6 pages

In this module case study I will briefly review Nike Inc. (NKE) and how important it is for the financial managers to use economic variables in order to identify their long term financial goals. I will also go over a few techniques that the financial managers of Nike Inc. could use for economic forecasting in the global economy.

Financial managers must be able to understand as many economic aspects affecting the market in any part of the world that would influence their company. Economic Variables are any data accounted for in an economic model. An economic variable is any measurement that helps to determine how an economy functions. Examples include population, poverty rate, ...view middle of the document...

This would better provide a picture of how the lives are of your potential consumers in the market. If unemployment is high and the market levels are low than you can expect that the average income would drop and poverty would be on the rise. This type of market might not be a good area for the most expensive and trendy products. By analyzing the market trends in reference to poverty and market levels will allow you to better gauge the focus group for that area and better market your products. For example in an area with low income and high poverty levels you would want to consider some low cost solutions for the average citizen. Later as the overall market condition improves in this area; you can start to introduce more trendy and expensive products. Other things to consider would be the inflation and exchange rates depending on the market. Hedging against various currencies would be a great idea in combination with insurance policies to protect Nike from losses in foreign markets. Overall it is imperative to study as many economic variables as possible when working in any market. Until you understand the economy and the financial trends of a region you will be just guessing and then you will probably lose more than you make. (Six key economic variables (Power Points)., 2002)

There are many techniques used to forecast market movements and no matter which method your business tends to use they will fall into one of two overarching approaches; either qualitative or quantitative. (Investopedia, 2014) Qualitative models are for short term predictions and require human interaction by weighing opinions about products and services while comparing to the measurable data. The two methods that fall into the qualitative category is 1) Market Research which relies on polls conducted on a substantial number of people on specific products and services. This tends to be used prior to bringing a new product or service to market. The other method is the Delphi Method which is basically a query asking input from field experts and using this to forecast.

Quantitative models on the other hand are for forecasting in the long term, and are data driven. They do not take into account any expert opinions or other human factors. The few methods that fall into the quantitative model are 1) the indicator approach which looks at relationships variables and monitors the relationships between them. One example would be the reactions between GDP and unemployment rates and how they move together over time. 2) The econometric Model is similar to the indicator approach but is more mathematically driven. It looks at relationships and analyzes the data and attempts to identify consistency of data sets over time. The Time Series Model is the last method and it refers to a collection of different methodologies that use past data to predict future events. The difference between the time series methodologies is usually in fine...

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