Long-Term Financial Forecasting
Chapter 4 provided an introductory overview of financial statement analysis. The focus of Chapter 4 was historical—meaning that financial statements were used to analyze how profitable, solvent, and liquid a company had been in the past. The focus of this chapter is forward-looking—meaning that it examines how accounting information is used to forecast a company’s potential financial performance in the future.
Financial forecasting can cover both short-term time horizons (such as months or quarters) and long-term time horizons that span multiple years. Short-term forecasting (often called operational budgeting) is primarily a managerial activity performed by internal users of financial information. Short-term ...
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