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.

VIDEO

Loading the player...

BREAKING DOWN '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. Economics

    Understanding Forecasting

    Forecasting is the use of historical data to predict the future.
  2. Fundamental Analysis

    Great Expectations: Forecasting Sales Growth

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

    Financial Career Options For Professionals

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

    Becoming A Financial Analyst

    A career as a financial analyst requires preparation and hard work, but the payoff can be especially rewarding.
  5. 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.
  6. Markets

    Surprising Earnings Results

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

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  8. 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.
  9. Budgeting

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  10. Forex Education

    Lessons From A Trader's Diary

    Discover what this trader learned from his mistakes and how to uncover your own.
RELATED FAQS
  1. Why is the TTM (trailing twelve months) important in finance?

    Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. ... Read Full Answer >>
  2. Is there an easy way to do financial forecasting in Excel?

    There is no easy way to conduct financial forecasting. All forecasting involves the technically impossible act of predicting ... Read Full Answer >>
  3. Why are the tangible assets of a company important to investors?

    A financial forecast is an estimation or projection of likely future income or revenue and expenses, while a financial plan ... Read Full Answer >>
  4. What is the difference between financial forecasting and financial modelling?

    The difference between financial forecasting and financial modeling is that the former is the process in which a company ... Read Full Answer >>
  5. How can companies reduce internal and external business risk?

    A company can reduce negative exposure to business risk by identifying internal risks and external risks. Internal risks ... Read Full Answer >>
  6. What's the difference between budgeting and financial forecasting?

    Budgeting and financial forecasting are financial planning techniques that help business personnel in the decision-making ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!