Importance of Financial Projection

Topic: Financial Management
Words: 369 Pages: 1

Financial performance is how an established firm uses its assets to generate revenues from its business model. Financial performance monitors the capital that works and the gross profit obtained. Financial performance is a good example of bank loans, rent, government tax, and employee payroll obligations. Financial performance has three elements: assets, liabilities, and equity (Kaban & Safitry, 2020). It is very important to project the first year’s financial performance every month and quarterly subsequent annual budgets. The essay will expound on projecting the first year’s financial performance every month and subsequent annual budgets every quarter.

Forecasting quarterly allows giving a comparison of the current year’s performance and that of the previous year. The quarters can display seasonal fluctuations throughout the year, varying or changing in an orderly activity. Data forecasting and comparing the data to the previous year can aid in determining real progress (Avon, 2020). Forecasting the data enables one to detect the challenges that lead to the fluctuation and varying of the data. This enables the people to come up with the best alternatives that curb the challenges of the fluctuations and varying of the data.

In addition, the financial projection predicts the company’s look on how it will perform in the future. Either in the group of investors or the business owners, it predicts whether a certain business will become profitable and grow (M. A.& Abdi, 2020). The prediction of how the business will function enables the investors to solve any of the challenges that may lead to the loss in their business. Prediction of the business avoids the loss of the business at any circumstance, thus ensuring the business grows as it becomes more profitable.

Finally, the financial projection helps one identify the financing needs, hence making capital expenditures. This helps in monitoring the flow of cash, changing the prices, and altering the plans of the production. Financial projection makes someone understand the business, how the revenue is obtained and how the revenue is spent (Kaban & Safitry, 2020). By understanding the business, one can participate in the business aiming for the best profits and how to spend the profit. Furthermore, the financial projection predicts the outcomes that are likely to exist in the business.


Avon, J. (2020). Financial modeling, where next? The Handbook of Financial Modeling, 325-328.

I, M. A., & Abdi, M. (2020). Financial investment Dan financial leverage terhadap financial Perfomance Perusahaan consumer goods. Jurnal Manajerial Dan Kewirausahaan, 2(4), 935.

Kaban, R. F., & Safitry, M. (2020). Does financial literacy affect the PERFORMANCE and sustainability of culinary MSMEs in greater Jakarta? Ekonomi Bisnis, 25(1), 1.

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