A link budget accounts for how signal power changes from transmitter to receiver.

When gains and losses are expressed in decibels, multiplication of linear power ratios becomes addition:

$$P_r=P_t+\sum G_i-\sum L_i,$$

where all quantities are expressed using compatible logarithmic power units.

Absolute power is often referenced to a fixed level. For example,

$$P_{\mathrm{dBm}}=10\log_{10}\frac{P}{1,\mathrm{mW}}.$$

The received power must be compared with the receiver noise and the SNR required by the chosen modulation and coding.

The link margin is the amount by which predicted received conditions exceed the minimum required conditions. Positive margin provides tolerance for modeling error, fading, component variation and other unplanned losses.

A link budget does not explain the physical origin of every gain or loss. It is the accounting framework into which antenna gain, propagation loss, cable loss, amplifier gain and receiver requirements can later be inserted.