The projection of a company's future net income and cash flow 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. Note that the key financial driver for most companies is the estimate of future sales from their products and services.

By projecting profit margins and expenses, and the level of investment in working capital and fixed capital needed to support projected sales, the analyst can forecast net income and cash flow. When projecting profit margins:

• For relatively mature companies operating in non-volatile product markets, historical information on operating profit margins can be used to estimate future operating profits. Non-recurring items should be removed from computations.
• For a new company, or a company in a volatile market or a capital intensive industry, historical operating profit margins are usually less reliable in projecting future margins.

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