Financial Forecasting

Calculating the risks and benefits of capital expenditures and creating an accurate operating budget require the use of financial forecasting. All these financial and risk assessment measures require that the assessors rely on financial forecasts of the future. Financial forecasts are a prediction of what the financial market will do in the future; they range dramatically in how technical they are. Some companies use simply their own perceptions and expectations of the financial market’s future. Others hire professional forecasters to help them predict the financial market of the future. Professionals often use extremely complicated formulas, extremely large data sets, and intricate economic/financial models to come up with their forecasted market predictions. An well-researched forecast can help a company decide to borrow long- or short-term, as well as whether it is best to invest in the capital expenditure now or at some future point in time. Using accurate financial forecasts can help companies project what the impact of a particular capital investment might be. It can also help companies create an accurate and finely tuned estimate of an operational budget for coming years (Hansen, 1998).

* Hansen, F. (1998). The role of forecasting in financial planning. Business Finance. Retrieved from http://businessfinancemag.com/corporate-finance/role-forecasting-financial-planning