Financial forecasting models are used to predict future outcomes, such as sales and profits, based on past data. In a nutshell, they provide an estimate of how much money a business is likely to generate in the future.
By using mathematical modeling techniques, businesses can evaluate their financial decisions and set realistic goals that optimize profitability. The most commonly used methods include linear regression, Monte Carlo simulation, econometrics, and data mining. More advanced techniques incorporate machine learning algorithms to increase accuracy.
Regardless of technique, all forecasting models rely on historical data to create an accurate picture of the future. Through strategic analysis and insightful data manipulation, these models help financial executives make wiser decisions and plan smarter strategies.