2. Projecting Future Financial Performance

b. forecast a company’s future net income and cash flow;

How does the projection of a company’s future net income often start? It often begins with a top-down sales forecast in which the analyst forecasts industry sales and the company’s market share. The company’s sales are then estimated as its projected market share multiplied by projected total industry sales.

What are sensitivity analyses used for? Sensitivity analysis is used to assess the impact of different assumptions on income and cash flow. These assumptions include sales forecasts, working capital requirements, profit margins, etc.