What are the economic factors and ratio we have to consider in preparing budget?

Cash flows;

Inflation rates

Interest rates

Income/Revenue levels

GDP

Recurrent expenditure

Financial obligations-debt levels,annual expenses.

Time value of money etc.

Time Value of Money plays important role in preparing Budget. Other than this, Economic Factors like Government Policies, Tax Structure, Economic Cycle etc. also plays important role in preparing budget, because Budget is made with long Term Prospective for Future.

Look at the production cost and compare it with the estimated profits during the year in addition to following the economic factors affecting the market demand

Dear Mr. Ahmad,

the question is vey important i will try to discuss as short as possible to breakdown top important economic points and factors that needs to be taken into account when determining, negotiating, preparing and forecasting businesses plans & especially budgets and future values for any kind of investments portfolio,

yes main goal of a business is to maximize profits and  this can be achieved:

1- demand by customers & supply: sales forecasts the most important homework for managers mainly rely on: customs data vs. grey/black and compatible markets, those reports are never% accurate so you should set your own rates, IDC gartner and GFK also never can be% accurate, sometimes only up to% on some products especially for mobile business its very delicate

so preparing the market demand & supply is so important that you cannot allow shortage or over stocking, gaps at dealers is very crucial, inventory can destroy your profitability

2- Customer/Dealer sastisfaction of goods: do not allow products repetition for long period, watch for saturation in the market change products follow demands and change models

3- Country economic growth & development: (tables from central bank & ministry of finance should be prepapred) i would like to highlight about too major arabic cities we have the DUBAI and BEIRUT examples for businesses, war turmoils have played a major role by collapsing all business types in LEBANON throught the past4 years, yes busineses get fed & catered from economic environments 

4- Income & Employement: the density of employment is a mojor indicator of a country economic health, the rate of demand in a company & the whole country

example: high demand on jobs in gulf area.

low demand & employement issues in Lebanon, Jordan, Syria, Iraq brought salaries & income down, recession issues companies started cut off

5- the price level: both when we talk about from raw materials until your products end price structure where it should be well designed as you cannot afford playing with those margins through the year as you will scramble your profits and followed by the whole business

6- Inflation: buying power goes down, no investments of any kind (example: russian, lebanon, turkey, ghana, zimbabwe), incomes are the same, products goes up that leads to adapting foriegn currency.

thank you

Preparing budgets is an art rather than a traditional science. It is related to future mangement. A lot of factors need to be considered. Some of these factors are:

(i) Inflation trends. This would affect the budgeted margin and therefore the profitability ratios.

(ii) Projected interest rates. This would affect the cost of capital and therefore debt & equity ratios.

(iii) General market trends. This would affect the projected selling volume and therefore the turnover and operational ratios.

GDP, Time Value of the Money, Interest Rate, Inflation Rate, Regional Development.

Mainly we have consider the total business value of the year and then consider and prepare sub budgets such as sales budjetm income budjet, meterial usage budget, parchase budget, labour or wages budjet maintenence and administration cost budgets etc.. then we prepare main budget.

At least we should have the below indicators 

1- ROI RATE OF RETURN 

2- Inflation rate 

3- Financial leverage 

4- Debit ratios

5- Trend analysis for historical data as it is possible 

6- Vertical and horizontal analysis 

7- Market share ratio 

8- industry indicators 

9- Development rate 

10- Visibility studies 

11- Board Prospects 

12- Cash flow analysis 

13- Plansfor company finance activities and Investment expansion 

14- Market and sales plans 

1. last year this period sales.

2. The cost of goods for the same valume of current year and last year.

3. forcasted sales gowth % 

ecnomic factors that effect on the budget of the company like economic factor social factor political factrs interest rate are effect on the budget in the uncertanity condition may expenses are more occure is more

Currency exchange stability

Bank intrest rate

Number of population

Per capitation income