The difference between financial forecasting and financial modeling is that the former is the process in which a company thinks about and prepares for the future, while the latter is the act of calculating, forecasting or estimating a company's financial numbers.

Financial Forecasting

When a company conducts its financial forecasts, it seeks to provide the means for the expression of its goals and priorities to ensure they are internally consistent. It can also help a company identify the assets or debt needed to achieve its goals and priorities.

A good example of a financial forecast is the forecasting of a company's sales. Since most financial statement accounts are related to or tied to sales, forecasting sales can help a company make other financial decisions that support achieving its goals.

Financial Modeling

Financial modeling, on the other hand, is the process by which a company builds its financial representation. The model created as a result of financial modeling is used to make business decisions. Financial models are the mathematical models made by a company in which variables are linked together; the company can modify these variables to see how the changes could affect the business.

Financial models are used for historical analysis of a company, projecting the full performance of a company, equity or investment research or project finance analysis. They are used to create pro forma financial statements.

Financial modeling takes the financial forecasts created during a company's financial forecasting and builds a predictive model that helps a company make sound business decisions based on its forecasts and assumptions.

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