Fundamentals of Financial Management, Third Edition

POINTS TO REMEMBER

1. Why is financial forecasting important?
   • In order to cope with the demand in future, future activities are planned and for that future financial variables are estimated.
2. How do you forecast a single financial variable?
   • First of all, sales are projected and then on that basis, other variables are estimated insofar as the other variables have some kind of relationship with sales.
   • The past trend of a single variable is also considered.
3. What are the different techniques of forecast?
   • Use of ratios
   • Simple, curvilinear and multiple regression analysis
4. How is a complete forecast made?
   • Proforma income statement
   • Proforma cash-flow statement
   • Proforma balance sheet