Exponential smoothing is a forecasting method in which current and past values of a time series are used to predict future values of the series. The forecast is based on a weighted average of current and past values, with the recent values carrying more weight.
Example:
Using historical values for gross fixed assets from 2018 - 2020 and a smoothing constant (alpha) of .5, what is the predicted value for gross fixed assets in 2021?12/15/2020 12/15/2019 12/15/2018 Gross Fixed Assets $5,800 $4,500 $6,000
Forecasting with exponential smoothing (alpha = .5):
Prediction for 12/2019 made in 12/2018 = $6000
Prediction for 12/2020 made in 12/2019 = .5 * $6000 + .5 * $4500 = $5250
Prediction for 12/2021 made in 12/2020 = .5 * $5250 + .5 * $5800 = $5525