Explain about forecasting in financial management.
The term forecasting refers to predication of future with the given circumstances. In forecasting, both
macro and micro economic factors will be considered. Financial forecasting tells about company’s future
Financial forecasting made through projected financial statements (income statements, balance sheets
and cash flows). It helps to make decisions like capital investments, requirement of working capital,
funds requirement etc.
Features of forecasting include −
- Relates to future events.
- Depends on historical and current events.
- Predication of future events.
- Forecasting techniques.
Quantitative and qualitative techniques are two types of financial forecasting techniques, which are
explained below in detail.
- Casual methods.
- Simple linear and multiple regression.
- Days sales technique.
- Percentage of sales technique.
- Time series methods.
- Financial statements.
- Projected cash flow and fund flow statements.
- Projected income statements and balance sheets.
- Executive opinions.
- Market research.
- Delphi method.
- Reference class forecasting.
- Scenario writing.
- Sales force polling.
Advantages of forecasting include −
- Valuable insight.
- Learn from the past.
- Decrease cost.
Disadvantages of forecasting include −
- Not accurate.
- Time consuming.
- Resource intensive.
Published on 12-Aug-2020 14:57:25