Forecasting financial statements - Essay Example

Forecasting and Corporate Valuation s 12th August Forecasting Financial ments Danielsson wrote that when management takes decisions, it is important that consideration is given to their likely effects, and this is achieved by the preparation of forecasts, which set out the expected financial results of a proposed course of action. The first step in the process of forecasting financial statements is to determine the overall period to be covered in the forecast and the end date. The second step is to spell out the details to be contained in the forecast, to determine if the figures should relate to weeks, months or years, and the extent of analysis of receipts and payments.

The third step is the area of activity to be covered in the activity (Danielsson, 2011). In order to improve the accuracy of forecast, the forecasted financial statements should only cover a small period such as only a month. This is because forecasted financial statements that cover a long period are prone to distortion or inaccuracies arising from external factors that were unforeseen and therefore, not considered during the forecasting process.Corporate Valuation Markham (2006) stated that in 2005, the American Insurance Group engaged in an improper corporate valuation scheme whereby they told their traders to inflate their stock prices, which in turn lead to an inflated valuation of the company.

In order to avoid such a scandal that occurred at AIG it is necessary to create rules that govern how corporate decisions should be made and they should be written in the corporation’s article of association. Secondly, the corporation’s decisions should based on a simple majority vote and incase a director of the corporation has a conflict of interest on the matter being addressed then the director should not be allowed to vote. ReferencesDanielsson, J. (2011). Financial Risk Forecasting: The Theory and Practice of Forecasting Market Risk with Implementation in R and Matlab.

 New Jersey, U.S: John Wiley & SonsMarkham, J. (2006). A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform. New York, U.S: M.E. Sharpe Publications