Forecasting is an important part of any firm's financial plan. Financial managers create forecasts by preparing budgets, and these budgets are then analyzed in order to determine if/when a firm will need to secure internal and external financing.

True or False?

The statement is: True.

Explanation:

Forecasting refers to the estimation of the expenditures a firm makes at the beginning of a period to have an idea of what and when the firm should invest in. Budgets are the main tool for forecasting. In most cases, budgets are requested in each department of the institution so the estimate will be the closest possible according to each unit's projected operations.

Financial managers do not only forecast the business's expenditures in the short and long run but develop the budget aiming to meet the firm's financial needs and monitor the company's expenses based on the forecast.