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What is a Financial Forecast?

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  • Last Modified Date: 23 August 2016
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A financial forecast is an estimate, usually prepared by a financial analyst, about the future direction of an economic indicator, a company, a family of indicators, or an entire economy. Forecasting is used by people like investors to make more informed choices about what to buy and when. Numerous companies make their financial forecasts available online, sometimes for a fee, and publications used by people in the financial industry also often contain forecast information and articles which discuss long term economic projections.

Just as with weather forecasting, it is impossible to predict the future, but some educated guesses can be made by people with the right training. Historical financial performance data is utilized to see how the market has tended to move in the past and to follow the history of specific companies and indicators. People can also look at current market conditions to gather more information. Trends often follow patterns in economics and people who can identify those patterns can use them in financial forecasting.

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In a simple example of a financial forecast, a company would usually prepare financial forecasts on a regular basis. These forecasts are used to estimate future earnings and to make projections about the direction in which the company is headed. This information can be used within the company to direct activities and outside analysts and investors may also utilize it to make decisions about buying or selling stock in the company. People who write about stocks and the market, for example, would use a financial forecast to make recommendations to readers about whether or not to buy stock in a given company.

Many publications routinely prepare financial forecasts for use in articles about the stock market and economy. Similar forecasts are used by governments to make the economic future feel less uncertain. A financial forecast may also be utilized when preparing legislation, getting ready to respond to an event in the market, or making policy decisions. Governments also utilize investments as part of their practices for activities such as growing pension funds for government workers and thus they have an interest in making good investment decisions and staying ahead of the market, if possible.

A computer program can make a financial forecast if it is provided with the right variables and it is well designed. Some companies do in fact use computers for this purpose. Financial analysts, economists, and other professionals in the financial world can also prepare forecasts by hand.

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SarahSon
Post 5

I have invested in a couple of mutual funds, and anytime I read over the financial information, I am reminded that past performance does not guarantee future results.

While it is very important to educate yourself about the company and look at their financial forecast, never rely on this as your sole reason for investing in a company.

If a company has a history of strong earnings and often beats the estimate, this is very positive, but I don't count on it happening every time.

I like to look go back at least 10 years and look at their financial fundamentals and compare those numbers with their current financial forecast to give me a bigger picture of the strength of the company.

julies
Post 4

If a company has a strong, positive financial forecast you feel like you have lowered your risk somewhat. Doing your due diligence on any company you are interested in is the most important thing you can do.

You don't have to be a financial expert to understand this information. I know a lot of people are intimidated by it and think the information is too hard to understand.

Once you become familiar with a few of the basic fundamentals such as earnings and income statements, you can get a good idea about how financially strong the company is.

Taking a look at the financial forecast of the company should be one of the first things you consider. Another thing to look at is if this forecast is for a short or long term. This can help you decide how long you want to be invested in a particular company.

bagley79
Post 3

Whenever I am looking at buying some stock or investing in any type of company, I will always look at their financial forecast.

Almost every website that has company stock quotes, will also have this information available if you look for their research information.

While this certainly does not guarantee how the company will perform in the near future, it can help you make an educated decision on whether this might be a good investment or not.

Windchime
Post 2

@Bakersdozen - I don't think a lack of qualifications in finance is essential for this kind of work, but you'd need other things to make up for that.

Do you have any experience that would be at all relevant? It could be with accounting, managing money or even personal investments.

You also need a methodical mind, the ability to research well and to be able to make connections. This job is as much about history as it is the future.

Bakersdozen
Post 1

This is something I would love to be able to do. Imagine how well you could manage your money. You would also be able to avoid losing a lot in financial depressions and stock market downturns.

How would you go about getting a job like this? I have an interest in economics but no formal education in the topic.

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