Financial Forecast :December 24, 2020
A financial forecast is an estimate of future financial outcomes for a company or project, usually applied in budgeting, capital budgeting and / or valuation; see Financial modeling #Accounting. Depending on context the term may also refer to listed company (quarterly) earnings guidance. For a country or economy, see Economic forecast.
Typically, using historical internal accounting and sales data, in addition to external industry data and economic indicators, a financial forecast will be the analyst’s modeled prediction of company outcomes in financial terms over a given time period. (For fundamental analysis, analysts often also use stock market information, such as the 52-week high of stock prices to augment their analysis of stock prices. ) For the components / steps of business modeling here, see the list for “Equity valuation” under Outline of finance #Discounted cash flow valuation.
How do you create a financial forecast :
- Use multiple scenarios. There is a strong temptation to be optimistic when forecasting growth.
- Start with expenses. In general, it’s much easier to predict your expenses than your revenues.
- Identify your assumptions.
- Outline each step in your sales process.
- Find comparisons.
- Constantly reassess.
What are the three types of forecasting :
There are three basic types—qualitative techniques, time series analysis and projection, and causal models.
Why is financial forecasting important :
A financial forecast gives your business access to uniform and cohesive reports. This allows you to establish business goals that are both realistic and feasible. It also gives you valuable insights into the way your business performed in the past and the way it will compare in the future.Oct 9, 2018