Financial Statement Forecasting Essay Example | Topics and Well Written Essays - 750 words

Financial Statement Forecasting - Essay Example There is no denying the fact that;" investors and share holders around the world base their decisions on financial and economic forecasts (Olley, 2006, 1)." Thus a professional, pragmatic and propitious financial statement forecast will fortify its plans of rapid future growth by exploiting novel business opportunities, undergoing product diversification and resorting to aggressive acquisition. The success of a company depends to a great extent on the reliability of its financial statement forecasting. To ensure this, it is a must that," the assumptions made in the previous Corporation Budgeting cycle, but not limited to, estimated sales volume, capital requirements, staffing resource requirements, customer demands and vendor contracts" are all meticulously verified and updated to reveal all the possible changes and the most recent data available (Harvard, 2008). All the possible changes projected or encumbered should be balanced by an appropriate action by the management. Microsoft Excel is the most common tool used during forecasting. Financial forecast has to be customized to suit the external and internal realities of a business and has to be flexible to accommodate future changes. The most common methodologies used for forecasting are Current Year Budget, Straight Line, Year to Date Actual plus Estimated Future Spending and Prior Year Data.Though the data required to achieve a financial forecast is basically the same as what is required to accomplish the budgeting process, forecasting differs from the budgeting process in the sense that a budget is a statement prepared a year in advance that gives guidelines for spending and acts as a yardstick for analyzing the business performance of a company, forecasting involves extrapolating the current performance of a company to estimate the future income, expenditure and growth prospects..References Financial Forecasting (2008). Harvard. Retrieved August 24, 2008, fromhttp://www.vis.harvard.edu/staff/policies/financial_forecasting.php Funky Finance (2008). CIMA. Retrieved August