Corporate Finance For Dummies, 2nd Edition

Chapter 19

Forecasting Finances

IN THIS CHAPTER

Collecting data

Analyzing data

Looking at the past

Predicting the future

Much like forecasting the weather, forecasting finances is a data-driven endeavor that requires some research, some statistics, and a continuously changing margin of error. Unlike the forecasts of meteorologists and stock investors, however, internal corporate finances are a bit more reliable and the calculations used are a whole lot simpler.

Determining your company’s future financially involves calculating the market conditions in the present using methods you develop when studying trends of the past. Many factors shape a company’s financial status at any given time, including:

• The operations of a corporation
• The corporation's relative performance and competitive position within the industry
• The industry's role in the greater economy

The goal is to identify how these factors continue to shape the present and to determine the needs of a corporation at any point in the future. Simple estimates are things like the daily cash needs and monthly bills, since each ...