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Fundamentals of Financial Management 15th Edition

Fundamentals of Financial Management (15th Edition)

Book Edition15th Edition
PublisherCengage Learning
Chapter 17, Section 17-2, SelfTest, Exercise 02
Page 596

Why is an accurate sales forecast critical for financial planning?

Here is a tip:

Errors in sales forecasting could lead to under- or overutilization of resources.


Management should project its sales at a reasonable growth rate, considering the competitiveness of the product and expected demand. Management should be neither too aggressive or pessimistic in preparing sales forecasts as both approaches could lead to financial losses.

Verified Answer

An accurate sales forecast is required for financial planning because future demand expectations and capital expenditures depend on how management projects its product demand. The larger the variance between the actuals and the forecast, the more catastrophic the results could be. An underestimation of projections could lead to missing out on future demands, and overestimation of sales could lead to unnecessary capital investments.

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