Financial Statement Forecasting - Essay Example

The financial forecast has to be customized to suit the external and internal realities of a business and has to be flexible to accommodate future changes. The most common methodologies used for forecasting are Current Year Budget, Straight Line, Year to Date Actual plus Estimated Future Spending, and Prior Year Data. Though the data required to achieve a financial forecast is basically the same as what is required to accomplish the budgeting process, forecasting differs from the budgeting process in the sense that a budget is a statement prepared a year in advance that gives guidelines for spending and acts as a yardstick for analyzing the business performance of a company, forecasting involves extrapolating the current performance of a company to estimate the future income, expenditure and growth prospects.