Forecast Financial Performance of a Firm

Usually based on top-down approach.

Single period forecast:
1. Forecast GDP growth (supplied by in-house or outside party)
2. Use historical relationship to estimate relationship between GDP growth and the growth of industry sales
3. Determine the firm's market share and multiply by industry sales to forcast the firm's sales
4. Forcast earnings by using simple forecasting model - historical average or trend-adjusted measure of profitability, e.g. operating maring, EBT maring or net margin. Or, forcast earnings by using complex forecasting models - each financial statment items are estimated on separate assumptions.

Multi-period forecast:
· Usually employ a single estimates of sales growth which is expected to continue indefinitely

Estimate cash flow:
· Make assumptions on future source and use of cash, especially on the changes in working capital, capital expenditure on new fixed assets, issuance or repayment of debts, stock issuance and repurchase.
· Assumption on noncash working capital as a % of sales remain constant