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JOURNAL OF ACCOUNTING AND FINANCE
Incorporating Macroeconomic and Firm-Level Uncertainties in Stochastic
Pro-Forma Financial Modeling
Author(s): John T. Cuddington, Irina Khindanova
Citation: John T. Cuddington, Irina Khindanova, (2012) "Incorporating Macroeconomic and Firm-Level Uncertainties in Stochastic Pro-Forma Financial Modeling," Vol. 12, Iss. 3, pp. 24 - 37
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper demonstrates how to incorporate macroeconomic and firm-level uncertainties into stochastic pro forma financial modeling using EViews. A recent paper by Cuddington and Khindanova (CK) showed how to link a simple univariate sales forecasting equation with a pro forma financial statement model to perform stochastic simulations of financial statements. This study extends the CK analysis to include a multivariate sales forecasting equation with macroeconomic factors. In addition, key ratio equations are estimated and treated as stochastic. The integration of macroeconomic forecasting and financial projections should be especially useful for an analysis of companies in highly cyclical industries.
