Forecasting is a vital ingredient in the making of both long-term and short-term plans. For example, in the control and management of working capital we are attempting to optimise the future profitability-risk profile of the firm and this will require, amongst other things, forecasts of the future demand for inventory, the level of future interest rates and the availability of future finance. Many of the formal decision models discussed previously in the book rely on forecasts of demand functions as one input and the ‘optimal’ solutions produced therefrom are dependent upon the forecasting accuracy. The focal point for the planning of working capital is the sales forecast; from this, fairly reliable assumptions can be made as regards the management of inventory, debtors, cash and their funding. Table 7.1 shows the relationships between the sales figures and the various components of working capital — clearly sales has an extremely important impact.