- Forecast period (finance)
In finance, the forecast period is the time period in which the individual yearly
cash flows are input to the discounted cash flowformula. Cash flows after the forecast period can only be represented by a fixed number such as the compound annual growth rate. There are no fixed rules for determining the duration of the forecast period. This article covers three methods of determining the forecast period.
No Set Maximum
Determine a forecast period by choosing a number of years with excessive return. In the years chosen the company should plan to generate a return on new investments greater than its
cost of capital. This can be based on factors such as comparing the company’s competitiveness with it’s competitors.
Predetermined Maximum, Based on Exit Strategy
Determine a forecast period by choosing a number of years after which an exit is planned. A exit can either be positive (merger, acquisition,
initial public offering) or negative ( bankruptcy). This method is mostly used by investors, using venture capitalfor example, planning on a positive exit.
Predetermined Maximum, Based on Market
Determine a forecast period by choosing a number of years based on characteristics of the market. Companies in established and well known market are better suited towards longer forecasting periods then companies opening up a new market.
The number of forecasting years is always limited by the availability of individual yearly cash flows. Choosing a forecast period of 10 years is not meaningful when individual cash flows can only be determined for four years.
Wikimedia Foundation. 2010.
Look at other dictionaries:
business finance — Raising and managing of funds by business organizations. Such activities are usually the concern of senior managers, who must use financial forecasting to develop a long term plan for the firm. Shorter term budgets are then devised to meet the… … Universalium
Hedge (finance) — For other uses, see Hedge (disambiguation). Finance Financial markets … Wikipedia
Quantitative behavioral finance — [cite web|url = http://www.pitt.edu/ caginalp/QuantitativeBehavioralFinanceJan2.pdf | title = Quantitative behavioral finance | month = January | year = 2007|format=PDF] is a new discipline that uses mathematical and statistical methodology to… … Wikipedia
Rolling forecast — is the process of simulating profit and loss accounts for a company on rolling basis.Traditionally, the budget process has been a one off event, albeit a long and arduous one. Forecasts, though more frequent, remain a series of one off quarterly… … Wikipedia
revenue forecast — UK US noun [C] ► ACCOUNTING, FINANCE a calculation of the amount of money that a company will receive from sales during a particular period: »The internet hosting company revealed that it had missed revenue forecasts by 20%. ► TAX a calculation… … Financial and business terms
cash flow forecast — UK US noun [C] (also cash flow projection) ► ACCOUNTING, FINANCE a plan of how much money a company expects to spend and receive over a particular period: »The bank has requested that we put together a business plan and cash flow forecast … Financial and business terms
Valuation using multiples — is a method for determining the current value of a company by examining and comparing the financial ratios of relevant peer groups, also often described as comparable company analysis (or comps). The most widely used multiple is the price… … Wikipedia
transportation — /trans peuhr tay sheuhn/, n. 1. the act of transporting. 2. the state of being transported. 3. the means of transport or conveyance. 4. the business of conveying people, goods, etc. 5. price of travel or transport by public conveyance; fare. 6.… … Universalium
Valuation using discounted cash flows — is a method for determining the current value of a company using future cash flows adjusted for time value. The future cash flow set is made up of the cash flows within the determined forecast period and a continuing value that represents the… … Wikipedia
economic forecasting — Prediction of future economic activity and developments. Economic forecasts, which range from a few weeks to many years, are widely used in business and government to help formulate policy and strategy. Macroeconomic forecasts predict the course… … Universalium