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:
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.