Financial forecasting refers to planning for future of a company or firm; it is done by companies in order to know what would be possible outcome of the company’s operations in future years. Financial forecasting is different from budgeting because budgeting is done for a year and basically an estimate of possible profit or loss during the year while financial forecasting is much wider in scope and it tends to estimate the reason why company is doing business and where it will be after 3 to 5 years.
Financial forecast is much more complicated as one has to take into all the variables like industry outlook, government policies, international market dynamics and so on. Financial forecasting of costs is much easier as compared to revenue because revenue over a period of time tend to fluctuate much more than costs on account of various variables pointed out above.
Financial forecast is not only made for companies but also for a country by various agencies as people are interested in knowing about the future outlook of a country so that they can invest into those countries where growth prospects are good and avoid low growth countries.