Financial forecasting refers to determination of the firm of financial requirements in advance. Financial forecasting is needs financial planning using budgets.
The financial forecasting and planning will determined also the firm the activities should undertake in order to achieve its financial targets.
Financial forecasting is significant in the following ways like:
1. Facilitate financial planning that is determination of cash surplus or deficit such are likely to happen in future.
2. Facilitate control of expenditure. This will minimize wastage of financial resources in order to get financial targets.
3. It avoids surprise to the manager's as any cash deficit is identified well in advance so the firm can plan for sources of short term funds that as bank drafts or short term loans.
4. Motivation to the staff - Financial forecasting using targets and budgets will enhance unity of purpose and objectives among staff that are determined to achieve the set target.