The use of historic data to determine the direction of future trends. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them. Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company. Forecasting also provides an important benchmark for firms which have a long-term perspective of operations.
Stock analysts use various forecasting methods to determine how a stock's price will move in the future. They might look at revenue and compare it to economic indicators, or may look at other indicators, such as the number of new stores a company opens or the number of orders for the goods it manufactures. Economists use forecasting to extrapolate how trends, such as GDP or unemployment, will change in the coming quarter or year. The further out the forecast, the higher the chances that the estimate will be less accurate.
Investment dictionary. Academic. 2012.
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