financial forecast

(noun)

estimate of future financial outcomes for a company or country

Related Terms

Examples of financial forecast in the following topics:

  • Strategic Planning

    • A financial forecast is an estimate of future financial outcomes for a company.
    • Arguably, the most difficult aspect of preparing a financial forecast is predicting revenue.
    • Unlike a financial plan or a budget, a financial forecast doesn't have to be used as a planning document.
    • Outside analysts can use a financial forecast to estimate a company's success in the coming year.
    • Financial forecasting is often helped by processes of financial modeling.

  • Inputs

    • In corporate finance, investment banking, and the accounting profession, financial modeling is largely synonymous with cash flow forecasting.
    • A financial forecast is an estimate of future financial outcomes for a company or country (for futures and currency markets).
    • Arguably, the most difficult aspect of preparing a financial forecast is predicting revenue.
    • Unlike a financial plan or a budget, a financial forecast doesn't have to be used as a planning document.
    • Outside analysts can use a financial forecast to estimate a company's success in the coming year.

  • Financial and Budgetary Controls

    • Some tools that project managers can use to control finances and budget include payback period and other financial forecasting calculations, and budgeting techniques, including variance analysis.
    • Financial forecasting calculations, such as payback periods, calculate the period of time required for the return on an investment to repay the sum of the original investment.
    • Net present value (NPV) is a financial forecasting calculation that does include the time value of money.
    • This is a complex financial forecasting model that derives real rate of return using interest and inflation to localize currency chronologically.
    • It is important for a project manager to conduct these financial forecasting calculations and budgeting controls to identify budgetary constraints well before costs are incurred and to secure funding from top management.

  • Impact of Modifying Inputs on Business Operations

    • The inputs of accounts receivable, inventory, accounts payable, and other line items on financial statements provide important data for financial forecasting.
    • Modifying any one of these inputs can lead to major changes in forecasts.
    • Since inventory is such a prevalent expense, accurate forecasting is of the utmost importance.
    • Moreover, the modification of this particular input will have expansive effects on all of the financial statements a firm must forecast.
    • Inventory management is a modifying input that can impact financial forecasts

  • Financial Plan and Forecast

    • Financial planning aims to ensure that a firm is properly capitalized and makes appropriate investments.
    • Financial planning is important in ensuring that corporate investment is financed appropriately, as well as seeing to it that money is spent in worthwhile investments .
    • The financing mix will impact the valuation of the firm (as well as the other long-term financial management decisions).
    • Most organizations prepare a revised forecast for the balance of the year, taking into account earlier budgets and forecasts.
    • Another word for forecasts is scenarios.

  • Impacts of Forecasting on a Business

    • The financial and economic crisis that erupted in 2007 - arguably the worst since the Great Depression of the 1930's - was not foreseen by most of the forecasters, even if a few lone analysts had been crying wolf for some time (for example, Nouriel Roubini and Robert Shiller).
    • In preparing financial forecasts, firms should always assume they will be reviewed by a bank manager, regulatory agency, or investor.
    • Forecasting financial statements comprises the estimation of several values - including sales, costs, and expected interest rates.
    • Does the financial position of the business remain sound when growth is forecast (this is what the balance sheet is for)?
    • Studies on the economic impact of business operations should be taken into account when forecasting financial statements and business activities.

  • The Role of Financial Managers

    • Financial managers ensure the financial health of an organization through investment activities and long-term financing strategies.
    • Financial managers are responsible for the financial health of an organization.
    • Financial managers typically:
    • Controllers direct the preparation of financial reports that summarize and forecast the organization's financial position, such as income statements, balance sheets, and analyses of future earnings or expenses.
    • Risk managers control financial risk by using hedging and other strategies to limit or offset the probability of a financial loss or a company's exposure to financial uncertainty.

  • Forecasting

    • For example, a business might estimate the exchange rate between the U.S. and the EU one year from now to determine the real financial cost of a project.
    • and often rely on financial data (exchange rates, industry growth, etc.).
    • Whether or not this is true would have to be supported with data, but the forecast is that Q2 consumer spending results could forecast Q3 GDP growth.
    • Forecasting plays a role in the implementation of policies and strategies.
    • This flow chart compares quantitative and qualitative forecasting methods.

  • Budgets, forecasts, and alternative scenarios

    • Earlier, we discussed cash flow forecasts and how they are used.
    • An extension of the cash flow forecast concept is the operating budget.
    • A budget is the financial expression of an organization's operating plan for a period of time, usually at least a year.
    • "A budget is a financial document used to project future income and expenses.
    • Another word for such forecasts is scenarios.

  • The Forecast Budget

    • Financial measures: In order to acquire assets, retire debt, or meet some major event, a company must accumulate and hold a certain amount of cash.
    • This requires that we plot cash flows and prepare a forecast.
    • This allows the forecasting period to be weekly or even daily.
    • Consider the following points when preparing forecasts
    • If necessary, prepare two forecasts: an early warning forecast for longer periods of time and a targeted forecast for shorter periods.