What is the primary purpose of financial forecasting?

The primary purpose of financial forecasting is to predict future financial outcomes based on historical data and trends. This involves analyzing past performance, market conditions, and other factors that can influence financial results, enabling businesses to make informed decisions about budgeting, resource allocation, and strategic planning. Forecasting helps companies anticipate potential challenges and opportunities, allowing them to prepare accordingly.

While assessing current financial health, evaluating investment opportunities, and determining market share are important aspects of financial analysis, they do not encapsulate the main goal of forecasting, which is focused on projecting what future financial performance will look like based on available data. Such predictive capabilities are critical for effective financial management and achieving long-term objectives.