Forecasting

AAA

DEFINITION of 'Forecasting'

The use of historic data to determine the direction of future trends. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them. Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company. Forecasting also provides an important benchmark for firms which have a long-term perspective of operations.

INVESTOPEDIA EXPLAINS 'Forecasting'

Stock analysts use various forecasting methods to determine how a stock's price will move in the future. They might look at revenue and compare it to economic indicators, or may look at other indicators, such as the number of new stores a company opens or the number of orders for the goods it manufactures. Economists use forecasting to extrapolate how trends, such as GDP or unemployment, will change in the coming quarter or year. The further out the forecast, the higher the chances that the estimate will be less accurate.

RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Risk Analysis

    The study of the underlying uncertainty of a given course of ...
  3. Barometer

    A compilation of market and economic data that represents a general ...
  4. Stock Pick

    A situation in which an analyst or investor uses a systematic ...
  5. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  6. Econometrics

    The application of statistical and mathematical theories to economics ...
Related Articles
  1. Fundamental Analysis

    Great Expectations: Forecasting Sales Growth

    Predicting sales growth can be something of a black art, unless you ask the right questions.
  2. Professionals

    Financial Career Options For Professionals

    Find out if spreading your wings to try a new career will make you soar or fall flat.
  3. Professionals

    Becoming A Financial Analyst

    A career as a financial analyst requires preparation and hard work, but the payoff can be especially rewarding.
  4. Options & Futures

    Forecasting Market Direction With Put/Call Ratios

    Options are not only trading instruments but also predictive tools that can help us gauge the feelings of traders.
  5. Markets

    Surprising Earnings Results

    Consensus estimates can send stocks spiraling - but are they representing reality?
  6. Personal Finance

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  7. Professionals

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
  8. Budgeting

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  9. Trading Systems & Software

    Neural Networks: Forecasting Profits

    Take a look at the algorithmic approach to technical trading - you may never go back!
  10. Forex Education

    Lessons From A Trader's Diary

    Discover what this trader learned from his mistakes and how to uncover your own.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center