FORECASTING

FINANCIAL
STATEMENT
The pro forma statement is a type
of financial document used toforecast a company's
future financial performance, which highlights
anticipated expenses and revenues for your company
and overall projected operating results. A basic
method used toforecast financial
statements involves the percent of sales method.
The art of finacial forecasting is popular
among entrepreneurs who know their
business inside out. It enables then to ask
the following questions among many
prior to a financial forecasting exercise:
• WHAT WILL HAPPEN TO THE MARKET
CONDITION TOMORROW?
• WHAT WILL COMPETITION DO?
• WHAT PRODUCT AND SERVICES WILL COME
OUT?
• WHAT TECHONOLOGY IS IN STORE FOR US?
• WHAT WILL INTEREST RATES BE LIKE?
Financial Forecasting is all about numbers of
assumption that entrepreneurs make about how
their sales move, how cost will behave ,what
kind of profit they will attain,what assets they
require and how they finance that assets.
 TYPES OF
FINANCIAL
FoRECAST
1.Income
Statement
Forecasting
How to create
a Financial
Forecast
1. Start with a sales forecast. Set up a spreadsheet
projecting your sales over the course of three
years. ...
2. Create an expenses budget. ...
3. Develop a cash-flow statement. ...
4. Income projections. ...
5. Deal with assets and liabilities. ...
6. Breakeven analysis.
 4 METHODS OF
FINANCIAL FORECAST
#1 Straight-line Method
The straight line method is one of the simplest and easy-
to-follow forecasting methods. A financial analyst uses
historical figures and trends to predict future revenue
growth.
In the example provided below, we will look at how
straight-line forecasting is done by a retail business that
assumes a constant sales growth rate of 4% for the next
five years.
#2 Moving Average
Moving averages is a smoothing technique that
looks at the underlying pattern of a set of data to
establish an estimate of future values. The most
common types are the 3-month and 5-month
#3 Simple Linear Regression
Regression analysis is a widely used tool for
analyzing the relationship between variables for
prediction purposes. In another example of
revenue forecasting methods here, we will look at
the relationship between radio ads and revenue by
running a regression on the two variables.
#4 Multiple Linear Regression
A company uses multiple linear regression to
forecast revenues when two or more independent
variables are required for a projection. In the
example below, we will run a regression on
promotion cost, advertising cost, and revenue to
identify the relationships between these variables.