According to AICPA Professional Standards: AT Section 301 Financial Forecasts and Projections, “financial forecast is the prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and cash flows. A financial forecast is based on the responsible party's assumptions reflecting the conditions it expects to exist and the course of action it expects to take.” In order for a valuation analyst to objectively perform the valuation analysis, the analyst has to judge whether or not management's prospective financial information is reasonable and can be relied upon in the valuation analysis. This white paper will focus on the valuation analyst's role in using management's forecast financial information and suggest a few useful analytical tools available to the valuation analyst.
