Further, both calculate outcome probabilities.Įven with those strong similarities, what they have in common does not end there. Both predict future outcomes based on specific assumptions. Financial Projection Commonalitiesīoth financial forecasts and financial projections are forward-looking statements. Software Free Product Tour (opens in a new tab) Financial Forecast vs. They are not financial projections because they look back, not forward. One further point of clarification: Pro forma financial statements are a reconfiguration of earlier, historical financial statements to show a past potential impact of a future transaction. Finance staff render the results of any given scenario in terms of likely financial impacts, such as the company’s expected financial position, operational results and cash flow situation.Ĭalculating several financial projections simultaneously is common in order to evaluate multiple options and an array of possible business actions. It is a tool used to explore business and market scenarios and predict outcomes before adjusting the company’s plans.Ī financial projection is a snapshot of a possible business outcome that is often weighed in terms of probability. What is a Financial Projection?Ī financial projection essentially projects the likely outcome of one or more hypothetical scenarios or assumptions. All companies, of any size, may use financial forecasts to develop their future budgets and financial plans and inform hiring needs. Publicly traded companies are not the only ones to use this forward-looking tool, but they are the only ones required to publish the resulting information. This is the information that is published by publicly traded companies for stockholders and the general public’s review. A financial forecast is based on what top management reasonably expects will happen to and in the company and the expected financial impacts. In short, a financial forecast is a statement of management’s expectations. Answers the question “If we had made this transaction earlier-say, bought a competitor or key supplier-the effect on our financial statement(s) back then would have been”. The effects of a future transaction on past financial statements. This information may be used to drive cash flow and inform pro forma financial statements, which include a balance sheet, cash flow statement and income statement. These potential outcomes can then be used to plot a company’s future path based on the highest possible degree of financial and risk certainty. These methods are not guesses about your company’s future rather, they use data to determine likely possibilities. Financial projections explore different scenarios to reveal a variety of possible business outcomes, should your company choose to pursue them, or if the assumed circumstances become reality-or what your company hopes will happen in the future. It predicts what will likely happen in your company’s future based on things that have happened in the past. But phrases like “financial forecast” and “financial projection” that sound similar are quite different.Ī financial forecast is an estimate of future financial outcomes for a company. East, Nordics and Other Regions (opens in new tab)įinancial terms are easily confused and often used interchangeably.
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