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.

  • 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

  • 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 Forecast Budget

    • Financial planning is a critical financial tool for funding profitable operations and dividing existing organizational assets optimally to pursue revenue maximization.
    • There are a number of ways to approach financial forecasting for a cash budget.
    • A cash budget is all about liquidity, and therefore forecasting what available liquidity will be required over a given period is the primary input for forecasting budgets.
    • Pro-formas are financial statements created in advance as a projection or estimation of what that document will look like after the financial period is finished.
    • This chart demonstrates a forecast budget to the reality of what actually occurred.

  • Receipts

    • The broader field of cash flow forecasting is integral to ensuring organizational liquidity.
    • Forecasting cash inflows and outflows in advance is a primary role of corporate financiers and accountants, and enables efficient use of existing assets to capture maximum competitive value in the marketplace.
    • As with all forecasting, shorter term forecasts are more certain than longer term forecasts (in general).
    • With longer term forecasting, it can be useful to consider past averages over time.
    • When creating a forecast utilizing past data, it is important to recognize the degree of certainty that can be reasonably applied to this forecast.

  • Trend Analysis

    • Trend analysis consists of using ratios to compare company performance on an indicator over time, often to forecast or inform future events.
    • In addition to using financial ratio analysis to compare one company with others in its peer group, ratio analysis is often used to compare the company's performance on certain measures over time.
    • Often this trend analysis is used to forecast or inform decisions around future events, but it can be used to estimate uncertain events in the past .
    • Fundamental analysis, on the other hand, relies not on sentiment measures (like technical analysis) but on financial statement analysis, often in the form of ratio analysis.
    • Trend analysis using financial ratios can be complicated by the fact that companies and accounting can change over time.

  • The Goals of Capital Budgeting

    • The purpose of budgeting is to provide a forecast of revenues and expenditures.
    • It enables the actual financial operation of the business to be measured against the forecast, and it establishes the cost constraint for a project, program, or operation.
    • Most organizations have many projects that could potentially be financially rewarding.
    • The ideal mix of those funding sources is determined by the financial managers of the firm and is related to the amount of financial risk that the corporation is willing to undertake.
    • Corporate bonds entail the lowest financial risk and, therefore, generally have the lowest interest rate.

  • Impact of Inflation on Financial Statement Analysis

    • General price level changes creates distortions in financial statements.
    • Accountants in the United Kingdom and the United States have discussed the effect of inflation on financial statements since the early 1900s .
    • General price level changes in financial reporting creates distortions in financial statements such as:
    • Many of the historical numbers appearing on financial statements are not economically relevant because prices have changed since they were incurred.
    • Future capital needs are difficult to forecast and may lead to increased leverage, which increases the risk to the business.

  • Sales Forecast Input

    • Target volume, price, and contribution margin per unit are the key inputs to a sales forecast.
    • For financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.
    • An example of sales forecasting for a company over a decade.