A financial forecast is an estimate, usually prepared by a financial analyst, about the future direction of an economic indicator, a company, a family of indicators, or an entire economy. Forecasting is used by people like investors to make more informed choices about what to buy and when. Numerous companies make their financial forecasts available online, sometimes for a fee, and publications used by people in the financial industry also often contain forecast information and articles which discuss long term economic projections.
Just as with weather forecasting, it is impossible to predict the future, but some educated guesses can be made by people with the right training. Historical financial performance data is utilized to see how the market has tended to move in the past and to follow the history of specific companies and indicators. People can also look at current market conditions to gather more information. Trends often follow patterns in economics and people who can identify those patterns can use them in financial forecasting.
In a simple example of a financial forecast, a company would usually prepare financial forecasts on a regular basis. These forecasts are used to estimate future earnings and to make projections about the direction in which the company is headed. This information can be used within the company to direct activities and outside analysts and investors may also utilize it to make decisions about buying or selling stock in the company. People who write about stocks and the market, for example, would use a financial forecast to make recommendations to readers about whether or not to buy stock in a given company.
Many publications routinely prepare financial forecasts for use in articles about the stock market and economy. Similar forecasts are used by governments to make the economic future feel less uncertain. A financial forecast may also be utilized when preparing legislation, getting ready to respond to an event in the market, or making policy decisions. Governments also utilize investments as part of their practices for activities such as growing pension funds for government workers and thus they have an interest in making good investment decisions and staying ahead of the market, if possible.
A computer program can make a financial forecast if it is provided with the right variables and it is well designed. Some companies do in fact use computers for this purpose. Financial analysts, economists, and other professionals in the financial world can also prepare forecasts by hand.