Explanation

Financial forecasting is done with the help of various financial ratios. However, when there is an increase in the economies of scale, these ratios are not likely to be constant. Thus, these ratios need to be adjusted accordingly. For instance, when the sales expand, the ratio of sales to inventory does not change in proportion due to the requirement of minimum buffer stock. The inventories grow less rapidly in relation to corresponding sales value.
 
Such a change in financial ratios affect the financial forecasting. Thus, future financial forecasts need to be adjusted when economies of scale change.
 
When economies of scale occur, the size of firms increases and there is high competition in the market. To win an edge over competitors, a firm has to produce effectively as well as efficiently and thus requires large investment in lumpy assets .Lumpy assets are the ones that can be procured in one large discrete unit. When such huge investments are made, the fixed assets to sales ratio  gets affected. Moreover, this also affects the future financial investments to be made at different levels of sales. Thus, the earlier financial forecasts need to be altered when there is purchase of lumpy assets.

Verified Answer

When there is a change in the economies of scale, there is a corresponding change in the financial ratios used for financial forecasting. Thus, when there is an increase in economies of scale the future financial requirements are to be adjusted accordingly.
 
Procurement of lumpy assets affects the fixed assets to sales ratio. This leads to change in the forecasted additional financial requirements at different levels of sales..