DEFINITION of 'Undercast'

Undercast is a type of forecasting error that occurs when estimates turn out to be below realized values. These estimates could apply to sales, an expense line item, net income, cash flow or any other financial account.

BREAKING DOWN 'Undercast'

Undercast (or overcast) amounts will not be known until the period in question concludes. When a company in the private sector, government agency or nonprofit organization prepares its budget for the upcoming year, it relies on its best and most up-to-date information to estimate what the operational numbers will look like for the next 12 months. Managers of these entities pull together all relevant information and make assumptions. Sometimes these assumptions are subject to greater degrees of uncertainty, which may ultimately cause an undercast or overcast to actual results. An undercast situation is akin to budgetary slack, and if undercasting occurs frequently, the causes should be investigated. Undercasting of sales or profits could simply be a reflection of a cautious or conservative management, particularly if its market or the general economy is in a state of flux, but it should also be determined whether compensation motives are at work. A low profit forecast would be easier to beat to obtain a bonus.

Undercast Examples

A steel manufacturer forecasts $3 billion in sales for the year. However, due to the imposition of tariffs to protect the domestic industry from foreign imports, the company realizes $3.5 billion in sales. The undercast amount was $500 million, but this was due to an unforeseen circumstance. As another example, a technology company that recently went public reported its first quarterly earnings results. Marketing and sales expenses were $250 million, $30 million higher than the company forecasted for the quarter. Finally, the Internal Revenue Service (IRS) projected that it would collect $3.3 trillion in a fiscal year. It had undercast the amount by $100 billion because it ended up collecting $3.4 trillion.

RELATED TERMS
  1. Forecasting

    Forecasting is a technique that uses historical data as inputs ...
  2. Amount Realized

    Amount realized is the amount received from the sale of an asset. ...
  3. Error Of Principle

    An error of principle is an accounting mistake in which an entry ...
  4. Revenue

    Revenue is the amount of money that a company actually receives ...
  5. Organic Sales

    Organic sales are revenues generated from the firm's existing ...
  6. Underlying Cost

    An underlying cost is a cost that is associated with normal, ...
Related Articles
  1. Investing

    3 Profit Metrics Every Investors Should Understand

    In this article, you will understand how the three metrics gross profit, operating profit, and net profit helps investors see how a company is performing.
  2. Financial Advisor

    How Are Collectibles Taxed?

    If you plan to sell collectibles, it's imperative that you know the tax implications.
  3. Personal Finance

    There's Help Coming For Your Credit Report

    Soon, there will be another body protecting consumers when it comes to credit scores. Here are some new things to know about getting a credit report in the future.
  4. Insights

    The Basics Of Tariffs And Trade Barriers

    Everything you need to know about trade barriers and tariffs, why they are used and their effects on the local economy.
  5. Investing

    Is Now The Time To Invest In Steel?

    Recent price drops present long-term opportunities, while many stable ETFs remain attractive. Learn your best options for turning cold hard steel into cold hard cash.
  6. Investing

    Under Armour May Drop 10% on Weaker Results

    UAA delivered better-than-expected Q2 results, but tepid Q3 guidance has weighed on the stock.
  7. Investing

    Evaluating A Company's Management

    Financial statements don't tell you everything about a company's health. Investigate the management behind the numbers!
  8. Small Business

    How Does Slack Work and Make Money?

    Here's a look at how Slack got to eight million daily active users.
RELATED FAQS
  1. How do budgeting and financial forecasting differ?

    Budgeting helps management members set expectations for where they want their company to go and financial forecasting measures ... Read Answer >>
  2. What is the difference between financial forecasting and financial modeling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  3. How do market capitalization and revenue differ?

    Understand the differences between market capitalization and revenue, including how each is calculated and reflects the value ... Read Answer >>
  4. In which industries is Average Collection Period most important?

    Find out which industries are most concerned with average collection period, and how different types of companies interact ... Read Answer >>
  5. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales. Read Answer >>
Trading Center