Forecasting Net Income for RDP

Enterprises
A CASE ANALYSIS

Zarah Joy Paciente

2009-33529
BS Management III
University of the Philippines Visayas
October 6, 2011

Background of the Case

RDP Enterprises is a fresh dressed chicken distributor that is based in Tacloban City which is
owned and managed by Mr. RDP. It started its distribution of fresh chicken on the year of 2005
and it is still ongoing up to this day. They provide better quality of fresh dressed chicken not
only to the wet market but to different supermarkets of Tacloban City and nearby towns like
Abuyog, Carigara, MacArthur, Lapaz, Sta. Fe, Palo, Tunga, Jaro, Tanauan, Tolosa , Dagami and
Dulag. Recently, theyve changed their supplier because of some certain issues due to some
problems with the previous suppliers management and supply.
The new supplier, Pura Farms, is a local business that grows chicken and eventually sells them
to distributors despite o the presence of big competitors like Magnolia, Bounty Fresh, etc. They
just have started the business because Mr. RDP convinced Mr. L to put up Pura Farms and help
him out in the dressed chicken distribution in Leyte. Because the supplier is a starting business,
the supply for RDP Enterprises isnt that stable compared before.
Mr. RDP wants to determine how much would be the sales that are going to be for 2012 & 2013
given the sales data since 2008 when RDP enterprises had Pura Farms as its supplier. Mr. RDP
also face a decision whether to continue having the new supplier as its partner in dressed
chicken distribution which would help him realize a good profitability.

RDP Enterprises
Summary of Net Income
For the years 2008 to 2011
RDP Enterprises Net Income
Year
Month
January
February
March
April
May
June
July
August
September

2008
60,806
-36,299
45,399
69,907
4,299
67,554
140,191 212,045
128,824
62,769
-40,836 150,758

2009
-84,714
-3,692
49,640 -38,767
126,302
-81,306
-113,070 -68,074
-36,076
38,838
84,196
86,958

October
November
December
Total

-56,733
-134,112
210,673
452,537

123,217
-63,174
282,037
322,198

19,828

342,080

2010
-10,649
17,876
40,221
47,447
212,580
199,140
148,214 559,934
-42,180
223,663
39,144 220,627
85,975
6,363
126,873
1,047,219

219,211

2011
185,697
86,597
32,380 304,674
17,291
72,823
105,306 195,420
-90,755
-116,082
0 -206,837
0
0
0
293,257

CASE ANALYSIS
I. Introduction
RDP Enterprises is a local fresh dressed chicken distributor business at Tacloban City. It is
owned by Mr. RDP and had managed it since 2005. Last 2008 theyve changed their supplier
because of some certain management and supply issues with the previous supplier which made
a loss with the small business.
The new supplier, Pura Farms, had recently set up its business by growing and selling dressed
chicken to local distributors through the efforts of Mr. RDP in convincing Mr. L to start up the
business. Because it is a starting business, the supply of chickens for RDP Enterprises hasnt
been stable.
Mr. RDP now evaluates his net income statement and wants to know what would be his profit
by 2012 & 2013 given the data from 2008 August 2011. He also wanted to know whether he
would continue having the new supplier as its partner based on the forecasted net income to
ensure his profitability.
II. Statement of the Problem
What will be the forecasted net income of RDP Enterprises going to have for years 2012 and
2013? Will RDP Enterprises continue having Pura Farms as its supplier given the forecasted
data?

III. Objective

To determine the forecasted net income for RDP Enterprises for years 2012 & 2013

To know whether Mr. RDP will continue having Pura Farms as its supplier given the
forecasted data

IV. Alternative Courses of Action

a) Continue with Pura Farms
Advantage: It would help Pura Farms to establish its name in the area and eventually
expand if continued.
Disadvantage: It is a starting business, supply wouldnt be stable until firmly establish
b) Discontinue with Pura Farms.
Advantage: It would allow RDP Enterprises to search for potential suppliers
Disadvantage: It would take time for RDP Enterprises to search for suppliers. Unstable
supply may also happen.

V. Analysis
This case would deal with forecasting for us to determine what would the forecasted net
income for RDP Enterprises for 2012 & 2013. Mr. RDP is also deciding whether to continue his
partnership with Pura Farms, the supplier, or not.
In order to determine the net income for 2012 and 2013, different methods were used: Nave
Forecasting, Time Series Progression- per year, per quarter and the Seasonalized Trend
Progression. On the next pages are the computations.

Nave Forecasting
Table 1.1 Nave Forecasting
Year

Quarter

2008

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
Sum of Actual

2009

2010

2011

Nave Forecast
Actual Net Income
Forecast Net Income

69,907
212,045
150,758
19,828
-38,767
-68,074
86,958
342,080
47,447
559,934
220,627
219,211
304,674
195,420
-206,837

Absolute Value of
Errors(Deviation) |Actual Forecast|

69,907
212,045
150,758
19,828
-38,767
-68,074
86,958
342,080
47,447
559,934
220,627
219,211
304,674
195,420
-206,837

142,138
61,287
130,930
58,594
29,307
155,031
255,123
294,633
512,487
339,308
1,416
85,463
109,254
402,257

2,115,210
Sum of Errors
MAD
MSE
MAPE

2,577,229
184,088
738,011,957,497
9%

Graph 1.1 Graph of Nave Forecasted Data

600,000
400,000
200,000
0

1
-200,000
-400,000

10

11

12

13

14

15

Time Series Regression Per Year

Table 2.1 Time-Series Regression for year 2008

Month
January
February
March
April
May
June
July
August
September
October
November
December
SUM
Average

t
1
2
3
4
5
6
7
8
9
10
11
12
78
7

b
a

x
60,806
-36,299
45,399
4,299
67,554
140,191
128,824
62,769
-40,836
-56,733
-134,112
210,673
452,537
37,711

Year 2008
tx
60,806
-72,598
136,198
17,198
337,770
841,149
901,771
502,152
-367,521
-567,333
-1,475,228
2,528,072
2,842,435

t^2
1
4
9
16
25
36
49
64
81
100
121
144
650

Forecast
41,521
40,829
40,136
39,443
38,750
38,058
37,365
36,672
35,980
35,287
34,594
33,902

-693
42,214

Graph 2.1 Graph of Forecasted Data against Raw Data (year 2008)

250,000
200,000
150,000
100,000
50,000

Series1

Series2
1

-50,000
-100,000
-150,000
-200,000

10

11

12

Error
19,285
-77,128
5,264
-35,144
28,804
102,134
91,459
26,097
-76,815
-92,020
-168,706
176,771

Table 3.1 - Time-Series Regression for year 2009

Month
January
February
March
April
May
June
July
August
September
October
November
December
SUM
Average

t
1
2
3
4
5
6
7
8
9
10
11
12
78
7

b
a

x
-84,714
-3,692
49,640
126,302
-81,306
-113,070
-36,076
38,838
84,196
123,217
-63,174
282,037
322,198
26,850

Year 2009
tx
-84,714
-7,385
148,920
505,209
-406,531
-678,419
-252,529
310,700
757,761
1,232,168
-694,913
3,384,448
4,214,716

t^2
1
4
9
16
25
36
49
64
81
100
121
144
650

Forecast
-54,705
-39,877
-25,049
-10,221
4,608
19,436
34,264
49,092
63,920
78,748
93,577
108,405

14,828
-69,533

Graph 3.1 - Graph of Forecasted Data against Raw Data (year 2009)

350,000
300,000
250,000
200,000
150,000
Series1

100,000

Series2

50,000
0
-50,000
-100,000
-150,000

10 11 12

Error
-30,009
36,185
74,689
136,523
-85,914
-132,505
-70,339
-10,255
20,275
44,468
-156,751
173,632

Table 4.1 - Time-Series Regression for year 2010

Year 2010
Month
January
February
March
April
May
June
July
August
September
October
November
December
SUM
Average

t
1
2
3
4
5
6
7
8
9
10
11
12
78
7

b
a

x
-10,649
17,876
40,221
212,580
199,140
148,214
-42,180
223,663
39,144
85,975
6,363
126,873
1,047,219
87,268

tx
-10,649
35,751
120,662
850,321
995,700
889,285
-295,262
1,789,302
352,299
859,746
69,997
1,522,471
7,179,622

t^2
1
4
9
16
25
36
49
64
81
100
121
144
650

Forecast
72,934
75,540
78,146
80,753
83,359
85,965
88,571
91,178
93,784
96,390
98,997
101,603

2,606
70,327

Graph 4.1 - Graph of Forecasted Data against Raw Data (year 2010)

250,000
200,000
150,000
100,000

Series1
Series2

50,000
0
1

-50,000
-100,000

10

11

12

Error
-83,583
-57,664
-37,925
131,828
115,781
62,249
-130,752
132,485
-54,640
-10,416
-92,633
25,270

Table 5.1 - Time-Series Regression for year 2011

Year 2011
Month
January
February
March
April
May
June
July
August
September
October
November
December
SUM
Average

t
1
2
3
4
5
6
7
8
9
10
11
12
78
7

b
a

x
185,697
86,597
32,380
17,291
72,823
105,306
-90,755
-116,082
0
0
0
0
293,257
24,438

tx
185,697
173,195
97,139
69,163
364,116
631,835
-635,284
-928,656
0
0
0
0
-42,795

t^2
1
4
9
16
25
36
49
64
81
100
121
144
650

Forecast
99,398
85,769
72,140
58,511
44,882
31,253
17,624
3,994
-9,635
-23,264
-36,893
-50,522

-13,629
113,027

Graph 5.1 - Graph of Forecasted Data against Raw Data (year 2011)

250,000
200,000
150,000
100,000
Series1

50,000

Series2

0
1
-50,000

-100,000
-150,000

10

11

12

Error
86,298
828
-39,760
-41,220
27,942
74,053
-108,378
-120,076
9,635
23,264
36,893
50,522

Time Series Regression Per quarter

Table 6.1 - Time-Series Regression for 1st Quarter
1st Quarter
Year

Time Period

Net Income

tX

t^2

2008

69907

69907

2009

-38767

-77533

2010

47447

142342

2011

304674

1218696

16

10

383261

1353411

30

Table 6.2 Forecast for 1st quarter

Year
2008
2009
2010
2011
2012
2013

Forecast
Forecast
-22762
56290
135341
214393
293444
372496

Time
1
2
3
4
5
6

Raw Data
69907
-38767
47447
304674

Graph 6.1 Graph of Forecasted Data against Raw Data (1st Quarter)
400000
350000
300000
250000
200000

Series1

150000

Series2

100000
50000
0
-50000

-100000

Table 7.1 - - Time-Series Regression for 2nd Quarter

2nd Quarter
Year

Time Period

Net Income

tX

t^2

2008

212045

212045

2009

-68074

-136147

2010

559934

1679803

2011

195420

781679

16

10

899325

2537380

30

Table 7.2 Forecast for 2nd Quarter

Year
2008
2009
2010
2011
2012
2013

Forecast
Forecast
138111
195925
253738
311551
369365
427178

Time
1
2
3
4
5
6

Raw Data
212045
-68074
559934
195420

Graph 7.1 - Graph of Forecasted Data against Raw Data (2nd Quarter)
600000
500000
400000

300000

Series1

200000

Series2

100000
0
1
-100000

Table 8.1 - - Time-Series Regression for 3rd Quarter

3rd Quarter
Year

Time Period

Net Income

tX

t^2

2008

150758

150758

2009

86958

173915

2010

220627

661880

2011

-206837

-827348

16

10

251505

159206

30

Table 8.2 Forecast for 3rd Quarter

Forecast
Year
2008
2009
2010
2011
2012
2013

Time
1
2
3
4
5
6

Forecast
203744
109832
15921
-77991
-171902
-265814

Raw Data
150758
86958
220627
-206837

Graph 8.1 - Graph of Forecasted Data against Raw Data (3rd Quarter)
300000
200000
100000
Forecast

0
1
-100000
-200000
-300000

Raw Data

Table 9.1 - Time-Series Regression for 4th Quarter

4th Quarter
Year
2008
2009
2010
2011

Time Period
1
2
3
4
10

Net Income
19828
342080
219211
0
581118

tX
19828
684161
657632
0
1361620

Table 9.2 - Forecast for 4th Quarter

Year
2008
2009
2010
2011
2012
2013

Forecast
Forecast
172633
154397
136162
117927
99691
81456

Time
1
2
3
4
5
6

Raw Data
19828
342080
219211
0

Graph 9.1 - Graph of Forecasted Data against Raw Data (4th Quarter)
400000
350000
300000
250000
Series1

200000

Series2

150000
100000
50000
0
1

t^2
1
4
9
16
30

Table 10.1 Summary of Time Series Regression per quarter condensed and projected from
years 2008-2013
Summary
Year

Time Period

Qtr

Net Income

Forecast

2008

69907

-22762

212045

138111

150758

203744

19828

172633

-38767

56290

-68074

195925

86958

109832

342080

154397

47447

135341

559934

253738

220627

15921

219211

136162

304674

214393

195420

311551

-206837

-77991

117927

2009

2010

2011

2012

2013

293444

369365

-171902

99691

372496

427178

-265814

81456
MSE

22,319,865,948

Graph 10.1 - Table of Forecasted Data against Raw Data using Time-Series Regression per
Quarter
700000
600000

500000
400000

300000
200000

Series1

100000

Series2

0
-100000
-200000
-300000
-400000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Seasonalized Trend Projection

Table 12.1 - Table of Centered Moving Averages
Step 1
t
1

Quarter
1

Net Income
69,907

212,045

3
4

3
4

150,758
19,828

-38,767

6
7
8

2
3
4

9
10
11
12

Step 2
4-Qtr Moving Ave

Ratio

-68,074
86,958
342,080

80,549
102,103

1.079556272
3.350349344

1
2
3
4

47,447
559,934
220,627
219,211

259,105
292,522
261,805
326,111

0.183119724
1.914160584
0.842715007
0.672195248

13

304,674

234,983

1.296579756

14
15
16

2
3
4

195,420
-206,837
0

128,117

1.525325331

Table 12.2 Table of Mean Ratios

Step 3
Quarter

Mean Ratio

0.49323316

1.146495305

0.640757093

1.340848197

Sum

3.621333756

Table 12.3 Table of Normalization Factor

Step 4
Normalization Factor
Factor

1.104565409

Table 12.4 Table of Final Seasonal Indices

Step 5
Quarter

Index

0.544808287

2
3
4
Total

1.266379055
0.70775812
1.481054537
4

Table 12.5 Table of Deseasonalized Data

Step 6: Deaseasonalized Data
Deseasonalized X
38,086
268,529
106,700
29,366

t
1
2
3
4

Quarter
1
2
3
4

5
6
7
8

1
2
3
4

-21,120
-86,207
61,545
506,640

9
10
11
12

1
2
3
4

25,850
709,089
156,150
324,663

13
14
15
16

1
2
3
4

165,989
247,476
-146,391
0

Table 12.6 Table of Trend Regression using Deseasonalized Data

Step 7: Trend Progression

SUM
Average
b
a

t
1
2
3
4

Deseasonalized X
38,086
268,529
106,700
29,366

Xt
38,086
537,058
320,100
117,464

t2
1
4
9
16

5
6
7
8

-21,120
-86,207
61,545
506,640

-105,602
-517,242
430,815
4,053,116

25
36
49
64

9
10
11
12

25,850
709,089
156,150
324,663

232,647
7,090,891
1,717,654
3,895,953

81
100
121
144

13
14
15
16
136
9
894,886
-7,457,387

165,989
247,476
-146,391
0
2,386,364
149,148

2,157,855
3,464,658
-2,195,858
0
324,545,472

169
196
225
256
1,496

Table 12.7 Table of Final Forecasted Data from years 2008 - 2013
Forecasted Data
t
1
2
3
4

Quarter
1
2
3
4

Deseasonalized Forecast
894,886
1,789,773
2,684,659
3,579,546

Seasonalized Forecast
441,388
2,051,966
1,720,214
4,799,627

5
6
7
8

1
2
3
4

4,474,432
5,369,318
6,264,205
7,159,091

2,206,938
6,155,898
4,013,834
9,599,255

9
10
11
12

1
2
3
4

8,053,978
8,948,864
9,843,751
10,738,637

3,972,489
10,259,831
6,307,453
14,398,882

13
14
15
16

1
2
3
4

11,633,523
12,528,410
13,423,296
14,318,183

5,738,039
14,363,763
8,601,072
19,198,509

17
18
19
20

1
2
3
4

15,213,069
16,107,955
17,002,842
17,897,728

7,503,590
18,467,695
10,894,691
23,998,137

21
22
23
24

1
2
3
4

18,792,615
19,687,501
20,582,387
21,477,274

9,269,141
22,571,628
13,188,311
28,797,764

Table 12.8 Forecasting Model

Seasonalized Trend Progression
Forecasting Model
Trend Progression
t

Net Income

Forecast

Error

Absolute Error

4,474,432

2,206,938

2,267,494

5,141,528,105,353

5,369,318

6,155,898

-786,580

618,708,014,868

6,264,205

4,013,834

2,250,371

5,064,170,410,403

7,159,091

9,599,255

-2,440,163

5,954,397,229,567

8,053,978

3,972,489

4,081,489

16,658,551,061,343

10

8,948,864

10,259,831

-1,310,967

1,718,633,374,632

11

9,843,751

6,307,453

3,536,298

12,505,400,401,200

12

10,738,637

14,398,882

-3,660,245

13,397,393,766,526
61,058,782,363,892

MSE

7,632,347,795,486

VI.

Conclusion

Based on the computation of different forecasting method, RDP Enterprises will be able to gain
at least a positive income by 2012 and 2013. Even though there were a lot of negative numbers
from the raw data, I am able to forecast a positive net income for the next 2 years. Because of
this, I conclude that RDP Enterprises through the management of Mr. RDP will still be profitable
for 2012 and 2013. Mr. RDP should also retain his partnership with the management of Pura
Farms even if it is a starting business of growing chickens and selling them to distributors.
Through the partnership, a series of improvement might happen given that assumption that
RDP Enterprises is gaining profit for 2012 and 2013. This would eventually lead to improvement
of quality and services provided by RDP Enterprises to its customers and to Pura Farms as well.