The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)

Available online at www.rajournals.in International Journal of Management and Economics Invention ISSN: 2395-7220 DOI: 10.47191/ijmei/v11i10.03 Volume: 11 Issue: 10 October 2025 International Open Access Impact Factor: 8.518 (SJIF) Page no. 4721-4726 4721 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies) Sina Ahmed Jaralla Al-Iraqia University ARTICLE INFO ABSTRACT Published Online: 13 October 2025 Corresponding Author: Sina Ahmed Jaralla Financial analysis is a significant topic in decision-making, as it involves analyzing and interpreting financial statement content to rationalize decisions for stakeholders who benefit from it, and subsequently to prepare budgets. All companies, regardless of size or scope, prepare budgets; all managers take part in this process, and it affects all employees. The budget is considered the annual financial plan set by the Industrial company, comprising financial data and detailed results for each organizational element. This research studies Iraqi Industrial companies to determine their use of financial analysis tools in preparing estimated budgets via questionnaire analysis, arriving at several conclusions, including that estimated budgets are vital for companies to assess financial positions by using past years’ data, which in turn clarifies corporate activities KEYWORDS: Financial Analysis, Estimated Budgets, Iraqi Industrial Companies, Questionnaire Analysis, Financial Positions INTRODUCTION Estimated budgets are plans and serve as quantitative expressions of the objectives management seeks to achieve in the short and long term. They may be defined as a set of tools management uses for planning, control, communication, coordination, motivation, and performance evaluation. Budgets are a financial translation of a plan covering all aspects of a project's activity for a future period, in a comprehensive and coordinated manner, approved by those responsible and adopted as a benchmark for tracking actual implementation, empowering management to take corrective action. Financial analysis is a process for deriving quantitative and qualitative indicators about a company's operations to prepare estimated budgets, relying on information from financial statements and other sources to then prepare estimated budgets for industrial enterprises. CHAPTER ONE: RESEARCH METHODOLOGY 1.1 Research Importance The importance of this research lies in enabling companies to prepare estimated budgets using financial analysis tools. Estimated budgets are considered the financial plan for the upcoming year through analyzing the previous year’s historical data for more accurate estimations, minimizing the gap between estimates and actuals, and clarifying the role of financial analysis tools in evaluating performance and future decision-making. 1.2 Research Objectives The objectives of this research are to identify the extent to which Iraqi Industrial companies use financial analysis tools in preparing estimated budgets and to determine what types of financial analysis contribute to realistic, well-studied estimated budgets that avoid application issues. 1.3 Research Problem The research problem is the extent to which financial analysis tools are used in preparing company estimated budgets. Some company managers rely on personal judgment and estimates without scientific financial analysis tools, leading to significant differences between estimated and actual budgets, causing major deviations and affecting implementation. 1.4 Research Hypotheses 1. Iraqi Industrial companies do not prioritize preparing planning budgets for control and performance evaluation. 2. There are no obstacles to using planning budgets for control and performance evaluation in Iraqi Industrial companies. “The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)” 4722 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 3. Sufficient information and an appropriate environment are not available in Iraqi Industrial companies for budget preparation. 4. System outputs are not used for correcting deviations and improving production efficiency in Iraqi Industrial companies. 5. The extent to which estimated budgets are prepared based on scientific principles for planning. 6. Iraqi Industrial companies do not prepare planning budgets according to established scientific standards for planning. 1.5 Key Terms • Financial Analysis: Analysis of financial and accounting data by specialists using ratios derived from financial statements and other reports, usually submitted to upper management as a basis for decision-making. • Financial Statement Analysis: A key part of broader business analysis, including risk assessment and the study of factors affecting the Industrial company. • Financial Analysis Tools: Techniques and tools used to analyze financial data, applied as appropriate to the company's situation. • Estimated Budget: One of the primary planning tools for future business activities, summarizing operations and activities to be undertaken over a specific future period (typically a year). (Al-Nuaimi, 2002, p. 32) 1.6 Previous Studies (Summary of four previous research studies on budgeting and financial analysis in Jordan, Iraq, and elsewhere.) CHAPTER TWO: FINANCIAL ANALYSIS 2.1 Concept of Financial Analysis Financial analysis encompasses mathematical, statistical, and technical methods performed by a financial analyst to assess company performance in the past, present, and future. (Abu Bakr, 2005, p. 55) 2.2 Definition of Financial Analysis It is a systematic process to derive indicators about a project's economic activities using information from financial statements and other sources, for performance evaluation and decision-making.) Geri,Nizta,2005,p133) 2.3 Stakeholders in Financial Analysis 1. Investors: Interested in profitability, liquidity, security. 2. Lenders/Creditors: Short-term focus on liquidity; long-term focus on profitability and solvency. 3. Shareholders: Seek information on company profitability and investment safety. 4. Management and Owners: Use analysis for liquidity, profitability, efficiency, and correcting negative deviations. 5. Government: Uses analysis for tax purposes. (Helles, 2006, p. 78) 2.4 Financial Analysis Tools 2.4.1 Vertical (Common-Size) Analysis Expresses each item as a percentage of a base, aiding comparison and trend analysis. 2.4.2 Horizontal (Trend) Analysis Identifies changes in financial statement items over time, expressed as percentages or absolute values. 2.4.3 Ratio Analysis The most important tool, used to measure liquidity, efficiency, profitability, and solvency. (Al-Fadl, 2002, p. 372) 2.5 Types of Ratio Analysis • Liquidity Ratios: Current, quick, working capital. • Solvency Ratios: Debt-to-equity, debt-to-assets, interest coverage. • Profitability Ratios: Profit margin, return on assets/equity. • Efficiency/Activity Ratios: Turnover, inventory turnover. • Coverage Ratios: Debt service coverage. ) Garrison.,2006,p10) • Market Expectation Ratios: Dividend yield, earnings per share. 2.6 Objectives of Financial Analysis • Evaluate operational plans and profitability. • Assess efficiency and control systems. • Identify the true status of the enterprise. • Assess the company's ability to meet financial obligations. • Benchmark within the sector. .(Kaplan, 2007, p488) CHAPTER THREE: ESTIMATED BUDGETS 3.1 Definition and Concept The primary purpose of a budget is to translate the company’s overall strategy into actions, ensuring daily activities align with strategic goals. It is both a planning and control tool as well as a means for communication, motivation, and performance evaluation. )Hammad, 2005, p. 87) 3.2 Budget Objectives • Planning: Anticipate and resolve problems before they occur. • Control: Set cost standards and monitor efficiency. • Motivation: Involve employees to increase commitment. (Al-Fadl, 2002, p. 97) • Communication and Coordination: Convey goals and facilitate cooperation. “The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)” 4723 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 • Control: Identify deviations by comparing actual and planned outcomes. • Performance Evaluation: Benchmark staff and department performance to planned targets. ( 56,2006 , Garrison) 3.3 Steps for Preparing Estimated Budgets 1. Define the company's mission. 2. Set long-term objectives. 3. Set short-term objectives and align with resources. 4. Prepare operational programs and schedules for each department. 5. Execute the plan and prepare reports on actual performance. 6. Compare actual with planned performance, analyze deviations, and take corrective action. 7. Adjust plans based on feedback to achieve company goals. ) Geri ,2005 ,133 p133) CHAPTER FOUR: PRACTICAL APPLICATION 4.1 Characteristics of the Study Sample Data analyzed by demographic characteristics such as employee number, age, Education, experience, and job title, as shown in the following tables. Table 1: Distribution of Respondents by Educational Level Educational Level Frequency Percentage (%) Bachelor's Degree 20 50.0 Higher Diploma/Master's/PhD 12 30.0 Intermediate Diploma 8 20.0 Total 40 100.0 Table 2: Distribution of Respondents by Years of Experience Years of Experience Frequency Percentage (%) Less than 5 years 6 15.0 5–10 years 12 30.0 More than 10 years 22 55.0 Total 40 100.0 Table 3: Distribution of Respondents by Job Title Job Title Frequency Percentage (%) Manager 14 35.0 Accountant 17 42.5 Auditor/Other 9 22.5 Total 40 100.0 Survey Scale A five-point Likert scale was used to determine the relative importance of each questionnaire item: Table 4: Likert Scale Degree of Agreement Value Strongly Agree 5 Agree 4 “The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)” 4724 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 Degree of Agreement Value Neutral 3 Disagree 2 Strongly Disagree 1 Data Analysis and Results Descriptive statistics were used to obtain means and standard deviations for survey questions, as shown below. Table 5: Attention of Iraqi Industrial Companies to Preparing Estimated Budgets Item Mean Standard Deviation Future planning is important 4.20 0.82 Budgets are prepared regularly 3.60 0.95 Budgets are used in financial decision-making 3.45 1.02 Actual outcomes are compared with budgets 3.30 0.75 Deviations are analyzed for improvement 3.00 0.95 The company ignores budgets 1.81 0.99 Overall 3.35 0.96 Table 6: Availability of Sufficient Information and Environment Item Mean Standard Deviation Sufficient data available for preparing budgets 4.10 0.85 Effective cooperation among department heads 4.95 0.64 Company systems support budget preparation 4.15 0.87 Overall 4.04 0.96 Table 7: Obstacles to Using Planning Budgets as Control and Evaluation Tools Item Mean Standard Deviation No regulatory barriers 2.80 1.01 Sufficient staff for budget preparation 3.02 0.99 Internal constraints exist 2.68 1.29 Overall 2.79 1.02 “The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)” 4725 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 Table 8: Preparation of Estimated Budgets According to Scientific Principles Item Mean Standard Deviation Budgets prepared using scientific methods 4.10 0.82 Previous years' data is analyzed 3.80 0.77 Budgets reflect company strategy 3.53 0.74 Overall 3.81 0.79 Table 9: Summary of Hypothesis Testing Results Hypothesis / Area Mean Standard Deviation Result General attention to budget preparation 3.35 0.96 Positive Availability of information and environment 4.04 0.96 Positive Obstacles to using budgets for evaluation/control 2.79 1.02 Neutral/Some Issues Preparation based on scientific principles 3.81 0.79 Positive SUMMARY The findings show that the Iraqi Industrial companies in the sample are aware and have positive attitudes toward the importance of estimated budgets in planning, control, and performance evaluation. The companies use scientific methods in budgeting and, despite some internal and external obstacles, continue to use budgets as effective tools for estimating revenues and reducing costs, clarifying the company's future. CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS Conclusions 1. Most Iraqi Industrial companies regularly apply and prepare estimated budgets for decision-making and financial review. 2. Estimated budgets are vital for reducing costs and increasing revenues through proactive planning. 3. Estimated budgets are essential to assess financial positions using past years’ data, clarifying company activities. 4. Companies use budget outputs to address deviations and improve future processes. Recommendations 1. Adopt scientific methodologies in budget preparation to provide a foundation for general rules, separating fixed and variable costs, and preparing standard estimates. 2. Involve all relevant departments in budget preparation. 3. Minimize internal obstacles faced in budget preparation. 4. Develop specialized staff to study financial positions and plan realistically based on previous research. 5. Update budget goals based on the company’s longterm strategic plan. REFERENCES 1. Abu Bakr, Mustafa Mahmoud. Public Administration: A Strategic Vision for Protecting the Administrative System from Backwardness and Corruption. Alexandria: University House for Publishing and Distribution, 2005, p. 55. 2. Al-Fadl, Muayyad and Nour, Abdul Nasir. "Determining Factors of the Relationship Between Participation in Budget Preparation and Job and Organizational Satisfaction: A Comparative Accounting Study Between Iraqi and Jordanian Industrial Public Joint Stock Companies." Journal of Studies, pp. 372–388, Deanship of Scientific Research, University of Jordan - Jordan, 2002. 3. Al-Nuaimi, Adnan and Al-Rawi, Abdul Khaliq. "The Impact of Accounting Information on Financial Decision Making." Working Paper presented at the Third Annual Scientific Conference, April 16–18, 2002, Faculty of Administrative and Financial Sciences, Philadelphia University, p. 32. “The Role of Financial Analysis Tools in Preparing Estimated Budgets (A Case Study in Iraqi Industrial Companies)” 4726 Sina Ahmed Jaralla, IJMEI Volume 11 Issue 10 October 2025 4. Al-Zatma, Husam al-Din Bashir. A Proposed System for Developing the Tender Pricing Process According to Activity-Based Costing System in the Construction Industry in Gaza Strip: An Applied Study on One of the Contracting Companies. Unpublished Master's Thesis. Gaza, Palestine: Okaz Magazine, Issue 937, 2006, p. 8. 5. Garrison, Ray H. and Noreen, Eric W. Managerial Accounting (10th ed.). New York: McGraw-Hill, 2006, p. 56. 6. Geri, Nizta and Boza, Ronen. "Relevance Lost: The Rise and Fall of Activity-Based Costing." Human System Management, 24 (2005), pp. 133–144. 7. Hammad, Hassan Obaid Muhaisin. Banking and Capital Adequacy in the Management of Iraqi Commercial Banks for the Period 2005, p. 87. 8. Hammad, Tariq Abdul Aal. Planning Budgets (An Integrated Perspective). University House, AlIbrahimiya - Arab Republic of Egypt, 2005, p. 87. 9. Helles, Salem Abdullah. "The Role of Budget as a Tool for Planning and Control in Palestinian Civil Society Institutions." Published Doctoral Dissertation, Journal of the Islamic University (Human Studies Series), Volume Fourteen, Issue One, 2006, p. 78. 10. Kaplan. Management Accounting, Fifth Edition, 2007. 11. Hou, Yilin. "The Rise and Fall of the Norm of Budget Balance," 2007, p. 132.