Financial forecast

A financial forecast is an estimate of future financial outcomes for a <a href="/facts/Company/psBVz9jr">company</a> or <a href="/facts/Corporate_finance/ugQCsFBQ">project</a>, usually applied in <a href="/facts/Budget/5wR3hBvM">budgeting</a>, <a href="/facts/Capital_budgeting/YRvRMxu7">capital budgeting</a> and / or <a href="/facts/Valuation_(finance)/ubVtk8RG">valuation</a>. Depending on context, the term may also refer to listed company (quarterly) <a href="/facts/Earnings_guidance/5KBrwJw7">earnings guidance</a>.
For a country or <a href="/facts/Economy/okLWSsEY">economy</a>, see <a href="/facts/Economic_forecast/cjBHhwo7">Economic forecast</a>.
Typically, using historical internal accounting and sales data, in addition to external <a href="/facts/Market_(economics)/6RfCU3fH">industry data</a> and <a href="/facts/Economic_indicators/CtcWghuE">economic indicators</a>, a financial forecast will be the analyst's <a href="/facts/Financial_modeling/Qhk0pV2W">modeled prediction of company outcomes</a> in financial terms over a given time period. 
For the components / steps of business modeling here, see <a href="/facts/Outline_of_finance/pQFtoDwS">Outline of finance § Financial modeling</a>. 
Arguably, the key aspect of preparing a financial forecast is <a href="/facts/Revenue_management/EsK8PodN">predicting revenue</a>; 
future costs, <a href="/facts/Fixed_costs/BfGf8r1Q">fixed</a> and <a href="/facts/Variable_costs/FRwUSFp5">variable</a>, as well as capital, can then be estimated as a function of sales via <a href="/facts/Financial_analysis/0IlR6hXf">"common-sized analysis"</a> - where relationships are derived from historical <a href="/facts/Financial_ratios/84jVBCMF">financial ratios</a> and other accounting relationships. At the same time, the resultant line items must talk to the business' operations:- in general, growth in revenue will require corresponding increases in <a href="/facts/Working_capital/vXPLCFmW">working capital</a>, <a href="/facts/Fixed_asset/67rk5BsC">fixed assets</a> (see, here, <a href="/facts/Owner_earnings/81CD9vbh">owner earnings</a>)
and associated financing; and in the long term, profitability (and other financial ratios) should tend to the industry average; 
see <a href="/facts/Valuation_using_discounted_cash_flows/AWrlU3fM">Valuation using discounted cash flows § Determine cash flow for each forecast period</a> for more detailed discussion, and other considerations; also <a href="/facts/Cash_flow_forecasting/FjsuvRYK">Cash flow forecasting</a>.
There is an extensive literature on the accuracy of <a href="/facts/Securities_research/7R9dzSRd">analyst forecasts</a> of revenue, profit and <a href="/facts/Share_price/PlkFFTpT">share price developments</a> of companies. In general, this literature shows that <a href="/facts/Financial_analyst/mlBpFFja">analysts</a> do not produce better forecasts than simple forecasting models.
(Additional to the above outline, for financial forecasts, analysts often also use specific financial historical information, such as the 52-week high of stock prices, to augment their analysis of stock prices.)

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Financial forecast