Lesson 1 of 6 · 12 min
What to forecast: forecast objects and principles
Before forecasting anything, choose the object: a driver, a single line, a summary measure or an ad hoc item, preferring objects the company discloses regularly and keeping the model only as detailed as accuracy requires.
In short
- Four forecast objects: drivers of financial statement lines, individual lines, summary measures (FCF, EPS, total assets) and ad hoc objects not yet in the statements.
- Forecasting drivers (e.g. stores × sales per store) gives the most explanatory value and can improve accuracy, because drivers inside one line may move in opposite directions.
- Summary measures are efficient but less transparent, so the forecast is hard to audit; use them when the measure is stable or disclosures are thin.
- Prefer objects that are disclosed regularly (or can be computed from what is), so forecasts can be verified against actual results in good time.
- Avoid overly complex models: more objects mean more work to build and update, often with no gain in accuracy.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.