financial forecasting

financial forecast is described as a process by which a company estimates future financial results. To do this, it uses historical accounting data and domestic sales, as well as economic indicators and foreign markets. This process allows the company to recognize its priorities and goals. It also helps to estimate the external financing needs and the most difficult aspect to estimate is the income estimation.

 

CHARACTERISTICS:


Firstly, refer to an specific point in the future, any change alters the prognosis. Secondly, they usually have some uncertainty.



WHAT IMPLIES A FORECAST:


Determine that amount of money needed and generated by the company

For a good forecast we look at three financial statements:

-Balance Sheet
-Statement of changes in the equity
-Statement of cash flows


CLASSIFICATION OF METHODS USED:

Subjective or opinions methods: They are based on the opinions of experts, both internal and external to the company. Well-founded judgments are more successful.

*Example. Delphi' method is used to obtain and manage the information from experts on various topics.

Historics methods: They are based on past events, reducing distrust based on other methods based only on opinions.

Causal methods: They are based on causes that determine events.

Example: correlation method, econometric and sensitivity analysis.

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