Base Case
BeginnerThe base case is the most likely or expected scenario in a financial forecast, built on realistic assumptions about how the business and the economy will perform.
When building forecasts, analysts usually start with a base case: their best estimate of what will actually happen. It reflects current trends, known plans and reasonable expectations, without being deliberately optimistic or pessimistic.
For example, if a company's sales have grown by about 6% a year and there is no reason to expect a major change, the base case might assume similar growth, with costs rising in line with inflation and planned investments going ahead.
Other scenarios, such as a best case and a worst case, are then built around the base case by changing key assumptions upwards or downwards. This shows the range of possible outcomes around the central estimate.
The base case is the one most often used for budgets, targets and valuations. Because it shapes so many decisions, its assumptions should be clearly stated and regularly checked against actual results. A base case that consistently proves too optimistic is a sign the forecasting process needs to improve.
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