Budgets, Forecasts and Projections
Chapter 1 argued the importance of looking to the future to understand a company’s ability to service its debts and the weaknesses or risks which could prevent it doing so. For this reason budgets, forecasts and projections, which are the various forms of attempt to foresee the future, are extremely important, whether made by the company or independently by the bankers. They are also, however, by definition, only attempts since nobody can see the future with certainty; their fallibility means that they have to be treated with caution. There is a danger that since budgets and forecasts are normally expressed in figures the banker will allocate to them a precision which must be spurious, since figures only represent an underlying reality which cannot be foreseen precisely. There is an opposite danger that bankers will dismiss forecasts as an irrelevancy, because they can never be guaranteed and can only by chance be completely accurate.
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