What is financial forecasting?

Financial forecasting refers to the process of predicting future revenue and expenses based on various data sources, trends, and assumptions. This practice is essential for businesses as it helps in planning and decision-making, allowing an organization to set budgets, allocate resources efficiently, and ensure financial stability in the future. By estimating future financial outcomes, businesses can prepare strategies for growth, manage cash flow, and mitigate potential risks.

The focus of financial forecasting is specifically on future financial performance rather than establishing goals, managing current resources, or merely recording past data. While establishing financial goals is an important aspect of financial planning, it does not involve the predictive analysis that is characteristic of forecasting. Similarly, managing current financial resources deals with the present state of finances, and recording historical financial data emphasizes the analysis of previous performance rather than looking ahead. Therefore, predicting future revenue and expenses is the core purpose of financial forecasting, making it the correct choice in this context.