Financial Forecasting - Essay Example

The wealth of shareholder is fundamentally the gains accrued from their ownership of shares in the business organization. This wealth can be maximized by two possible ways including the increase in share prices that bring about capital gain or increase in dividend payments. A realization of this fact can allow a firm to increase shareholders’ wealth through such methods. However, an optimal point needs to be struck as a firm needs to balance the risk and return involved (Riordan Manufacturing).

The leadership will maximize shareholders’ wealth only if it brings financial performance in excess of expectations, or if it convinces the capital markets that it has the ability to do so (Riordan Manufacturing).This is impossible without either putting new ideas or adopting new strategic plans. Basically, wealth creation cycle starts with creativity and innovation, this is to say that a good strategic plan is one that will deliver larger long-term economic profits than shareholders were expecting when they made their investment decision (Riordan Manufacturing).

As the business cycle progresses, the most essential question is “are we on track?” on which in most cases the solution to this question is sought by collecting revised forecasts of business drivers and outcomes (Riordan Manufacturing). Since the persons suitably placed to make these predictions are probably widespread across the business, the number of contributors is likely to be large, so as with budgeting systems, forecasting systems need to scale well and be easy to use (Riordan Manufacturing).

In order to have a good budgeting process it is very essential that a forecasting system has good access to plan data and actual business performance to date, so that a complete picture can be derived based on the latest actuals, the short-term forecast and longer term plans