Question 2.RQ.4: Why is the sales forecast normally critical to the preparati...

Financial Management for Decision Makers

Why is the sales forecast normally critical to the preparation of projected financial statements?

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The sales forecast is critical because it will determine the overall level of operations of the business. Thus, the future levels of investment, financing and overheads will be influenced by the level of sales. The cash received from sales will be an important factor in deriving the projected cash flows, and the sales revenue will be an important factor in deriving the projected profits.

The projected cash flows and profits, in turn, will be important factors in preparing the projected statement of financial position (balance sheet). For these reasons, care must be taken in deriving a sales forecast for the business.

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