What is a financial forecast?

A financial forecast is fundamentally an estimate of future financial outcomes based on historical data and market trends. This process involves analyzing past performance, current market conditions, and economic indicators to create projections about revenue, expenses, cash flow, and other financial metrics. Businesses use these forecasts to guide decision-making, prepare budgets, and set strategic goals, making it a vital tool for long-term success and sustainability.

The other options represent different concepts that are not specifically focused on predicting future financial outcomes. For instance, employee growth relates to human resources and organizational development rather than financial projections. Summarizing past financial performance is an important aspect of financial reporting but does not involve predictions about the future. Evaluating market competition pertains to understanding the competitive landscape rather than forecasting a company's financial situation. Thus, while all these elements are important to business operations, the correct characterization of a financial forecast is best captured in the second option.