Business valuation: national economic data to consider
If you are valuing a business, considering the economic climate the company operates in is key. Broad national economic data helps shed light on people’s inclination to spend money on products and services offered by the firm. Nationwide economic trends also help you assess how the company’s profit margins are likely to be affected in the future. The major variables to consider in your business valuation are these:
Gross domestic product
This is the value of all goods and services produced domestically using fixed assets and labor at the country’s disposal.
Gross national product
This defines the total value of goods and services produced in the country as well as the income generated by foreign investments less the payments made to foreign investors. In other words, GNP is the value of goods and services created by means of assets and property provided by the country’s residents.
Disposable personal income
Personal income less applicable taxes, available for immediate consumption or savings.
Capital spending by businesses
The total capital expenditures incurred by businesses in a given time period, such as acquisition of long term fixed assets in the form of plant and equipment.
Consumer durable goods purchases
Total amount of purchases by consumers of long lasting items such as cars and domestic appliances.
The value of new housing projects started in a given time period.
Consumer price index
This measure, known as CPI for short, is the typical way of measuring price changes of goods and services bought by consumers. CPI reflects the cost of a typical basket of consumer goods and services a household buys including such items as food, shelter, clothes, fuel, medical expenses, and other routine expenses.
Producer price index
This is a yardstick to measure the trend in prices of commodities at all points in the production or import into the country’s markets. PPI typically includes thousands of common products gathered from suppliers priced based on the manufacturer’s selling prices.
Depending on the industry your business operates in, each of these factors will play a certain role in how well the company will do going forward. Taken as a group, the economic factors define the playing field every company must be aware of in order to reduce risk, make wise and timely investments, increase its profits, and achieve its business value targets.