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Technique adopted while doing financial forecasting

which all technique are adopted while doing financial forecasting, also explain problems in financial forecasting. Answer: financial forecasting aims ate predetermining the demand for funds and the avenues where the funds are to be utilized. Thus a systematic projection of the financial data is made in the form of financial statement (fund flow analysis, financial ratio ext). Financial forecasting generates information whish is utilized by the management of an enterprise for taking decision s particularly for judging the financial efficiency of the funds and projecting a scale of standards to be followed in the future course. Another important basic objective of financial forecasting is its use as control device. Optimum utilization of funds, by a company can be planned through financial forecasting. Financial forecasting is done by using the following technique

a) Fund flow analysis
b) Pro forma financial statements
c) Cash budget

FUND FLOW ANALYSIS:

Fund flow analysis is accomplished by preparing a fund flow statement for evaluating the uses of funds and determining the sources of funds to finance those users. Fund flow analysis is done by studying past fund flows and projecting future fund flows. Fund flow statement provides the management of a corporate enterprise complete first hand knowledge of the financial growth of the enterprise and its resulting financial needs. As a matter of fact funds flow statement is known as the best way to determine as to how to fiancé those needs. It is useful foot in planning needs. PRO FORMA FINANCIAL STATEMENT: preparation of pro forma financial statement is another technique for financial forecasting. In pro forma financial statement, the pro forma balance sheet and profit and loss account are prepared to enable the management to evaluate the performance of the enterprise future financial conditions. CASH BUDGET: cash budget is another technique of financial forecasting. It is used to determine short-term cash needs. The liquidity position of an enterprise and degree of business risk involved for planning a realistic margin of safety. It gives clues of the enterprise for adjusting the liquidity cushion, rearranging maturity structure of the debt and making arrangement for availing cash credit facilities from the banks.