What does financial forecasting involve?

Financial forecasting primarily involves estimating future financial performance based on historical data, market trends, and various economic indicators. This process includes anticipating revenues, expenses, profits, and cash flows, which are crucial for decision-making in business planning and strategy. Accurate forecasting helps businesses prepare for future opportunities and challenges by providing insights into potential financial outcomes.

In contrast, calculating dividends, deducing tax obligations, and evaluating current market performance are more specific tasks not central to the broader scope of financial forecasting. While they can be influenced by financial forecasts, they do not encompass the entire practice of projecting future financial results. Thus, the focus on estimating future financial performance captures the essence of financial forecasting effectively.