AT federal law"On investment activities in the Russian Federation, carried out in the form of capital investments" by an investment project is meant a rationale for the economic feasibility, volume and timing of capital investments. Including the necessary design and estimate documentation, developed in accordance with the legislation of the Russian Federation and approved in the prescribed manner by standards (norms and rules), as well as a description of practical actions for the implementation of investments (business plan).
The main indicators of the economic efficiency of investment projects include: firstly, net profit.
Secondly, cash flow (CF), calculated as the sum of net income + all non-monetary income of the project - all non-monetary expenses of the project. A simplified version of the calculation of CF involves the addition of net income and depreciation.
Thirdly, return on capital (simple rate of return):
where Pr– net profit from the project implementation;
I- sum investment costs for the implementation of the project.
The economic meaning of a simple rate of return is to estimate what part of the investment costs is reimbursed (returned) in the form of profit during one planning interval.
Fourth, the payback period:
where R- net annual cash flow from the implementation of the investment project.
Fifth, the net present value of the project (NPV - Net Present Value) is the value of the net cash flow over the life of the project, given in a comparable form in accordance with the time factor:
where CF is the amount of money generated by the project in period t,
i- discount rate;
n– duration of the project period, years;
I 0 – initial investment costs.
If investment expenditures are made over a number of years, the NPV formula will take the following form:
where I t– investment costs in the period, t.
If NPV> 0 - the adoption of the project is expedient; NPV< 0 – проект следует отвергнуть; NPV= 0 – проект не является убыточным, но и не приносит прибыли. При рассмотрении нескольких вариантов осуществления проекта нужно выбрать тот, у которого NPV выше.
Sixth, the return on investment indicator (profitability index) (PI - profitability index), is calculated when a larger NPV value corresponds to a larger amount of investment, by dividing the cash inflow for the entire period of the project by cash outflow. The more the profitability index exceeds 1, the more profitable the project.
Seventh, the internal rate of return IRR (Internal Rate of Return), corresponds to such a discount rate of the discounted cash flow, at which it is equal to zero, is determined from the equation:
If a IRR exceeds the average cost of capital in this industry, taking into account the investment risk of a particular project, then this project can be recommended for implementation.
Business value: income approach to business valuation, comparative approach to business valuation, cost approach to business valuation.
The market valuation of a business largely depends on its prospects. When determining the market value of a business, only that part of its capital that can generate income in one form or another in the future is taken into account. At the same time, it is very important at what stage of business development the owner will begin to receive these incomes and what risk this entails. All these factors influencing the valuation of the business, allows you to take into account the discounted method cash flows(DDP). Determining the value of a business using the DCF method is based on the assumption that a potential investor will not pay for this business an amount greater than the present value of future income from this business. The owner will not sell his business for a price lower present value projected future earnings. This valuation method is considered the most appropriate in terms of investment motives, since any investor who invests money in an operating enterprise, in the end, does not buy a set of assets consisting of buildings, structures, machinery, equipment, intangible assets, but a stream of income.
The income approach is based on the analysis of income brought by this business. There are two main methods:
The main method of the income approach is the discounted cash flow method. It is based on the fact that the investor will not pay for this business an amount greater than the present value of future income from it. Thus, the value of the business being valued is calculated as the sum of the cash flows from the business reduced to the current value. The discount rate can be the required rate of return investor or the weighted average cost of capital of the enterprise. Therefore, according to the DCF method, the value of the business is equal to:
Business value =
where CF is the cash flow from the business being valued;
t is the year of the period under consideration;
r is the discount rate (weighted average cost of capital, capital asset valuation model or cumulative construction method);
n is the number of years of the period under consideration.
The second, less common method of the income approach is the profit capitalization method. It is used to value a business that has a large stable income stream. The value of the business being valued is determined as:
Business value = net income / capitalization ratio.
Net profit can be taken for the last reporting year, the first forecast year, or as an average for the last few years. reporting years, or consider earnings before taxes, or cash flow.
The capitalization ratio is treated as the discount rate minus the rate of growth in earnings or cash flow.
Comparative approach uses prices formed by the open stock market, that is, it is used to evaluate joint-stock company. It is necessary to find several similar enterprises recently sold on the market and compare their sales prices. Criteria for selecting enterprises of analogues:
level of financial risk;
stage of economic development;
Kind of activity;
Depending on the goals, object and specific conditions of the assessment, the comparative approach involves the use of three main methods: the method of an analogue company, the method of transactions, the method of industry coefficients:
Analog company method or capital market method. Here, the comparison base is the price of one share of a similar joint-stock company, that is, the method is used to evaluate non-controlling stakes.
The company's method of transactions or sales method, where the basis of comparison is the sale price of a similar enterprise as a whole, or a non-controlling stake. The price of a controlling stake is always higher than the simple sum of the prices of the shares included in this package, since in addition to the cost of shares it also includes a control premium, that is, an additional payment for the opportunity to implement one's own management policy for a joint-stock company.
To obtain the result in these two methods, price multipliers are calculated. Price multiplier- this is the ratio of the price of an analogue or one share of an analogue and some indicator, for example, revenue, net profit, and so on.
For example: evaluate a business if its net profit amounted to 10 million rubles in the last reporting year. A similar business was sold for 50 million rubles, its net profit for the same period amounted to 8 million 500 thousand rubles.
Multiplier = analogue price / analogue net profit = RUB 50 million / RUB 8.5 million = 5.88
The cost of business valuation = 5.88 * 10 million rubles. = 58.8 million rubles.
The method of industry coefficients, or the method of industry ratios, is based on the use of recommended ratios between the price and certain financial parameters. Industry coefficients are calculated on the basis of long-term statistical observations by special research institutes of the sale price of an enterprise and its most important production and financial characteristics. As a result of the generalization, quite simple formulas for determining the value of the enterprise being valued were developed.
Cost or property approach considers the value of the business in terms of costs incurred. Two methods are commonly used:
cost method net assets. The calculation includes several stages.
Estimated real estate businesses at fair market value.
Appraisal of machinery and equipment.
Intangible assets are appraised.
Determined market price short and long term investments.
Inventories are assessed.
Accounts receivable are assessed.
Deferred expenses are estimated.
The liability of the enterprise is translated into present value.
The value of the company's own capital is calculated as the reasonable market value of all liabilities.
Method salvage value enterprises. Used in cases where:
An ownership interest that is either a controlling interest or such a share that is capable of causing the sale of assets is being assessed.
If the profitability is low or the company is unprofitable.
When the decision to liquidate the business is made.
The business is in bankruptcy.
There is a so-called "orderly liquidation", when the sale of assets goes on for a long time and there is an opportunity to get a high price. There is a "forced liquidation" where assets are distributed as quickly as possible.
The third type of salvage value is the cost of discontinuing the existence of assets. In this case, the assets are not sold, but written off and destroyed, and a new enterprise is being built in this place. To calculate the salvage value, the liquidation costs are deducted from the full replacement cost of the assets. These costs include commissions of realtors, appraisers, lawyers, severance payments to employees, transportation costs, and so on.
As a rule, the liquidation value of the business as a whole is less than the amount of proceeds received from the separate sale of assets.
Chapter 10
Assessment of investment projects
The essence, calculation procedure and features of the application in the appraisal practice of indicators of the economic efficiency of investment projects must be constantly studied. This is due, on the one hand, to the fact that the investment project acts either as an independent object of evaluation, or as one of the elements of property identified in the cost approach along with machinery and equipment, intellectual property, etc.
On the other hand, if the purpose of the appraisal is the purchase and sale of property, then the potential owner intends to invest funds that match the final value of the value, determined by a combination of three approaches: profitable, comparative and costly. Therefore, the discounting process carried out in income approach, needs to be corrected.
attractiveness investment project can be assessed according to a large number factors and criteria: the situation on the investment market, the state financial market, professional interests and skills of the investor, financial solvency of the project, geopolitical factor, etc. However, in practice, there are universal methods of investment attractiveness of projects that give a formal answer: it is profitable or unprofitable to invest in this project; which project to prefer when choosing from several options.
Investing, from the point of view of the owner of capital, means giving up immediate benefits for the sake of generating income in the future. The problem of evaluating investment attractiveness is to analyze the proposed investment in the project and the flow of income from its use. The analyst must assess how the expected results meet the requirements of the investor in terms of profitability and payback period.
To make a decision on an investment project, it is necessary to have information about the nature of full cost recovery, as well as the correspondence of the level of additional income received to the degree of risk of uncertainty in achieving the final result.
Distinguish between simple (static) and sophisticated valuation methods based on the theory of changes in the value of money over time.
Simple Methods traditionally used in domestic practice. Methodological recommendations for calculating the economic efficiency of capital investments provided for a system of indicators that meets the current business conditions.
To key indicators relate:
1) coefficient of overall economic efficiency of capital investments
E = P / C
where P- annual profit;
To - capital investments;
2) payback period
T = K/P
3) an indicator of comparative economic efficiency, based on the minimization of reduced costs,
P 3 \u003d C + E H - * K:,
where C - current costs (cost) for the same option;
E n - normative coefficient of efficiency of capital investments;
To - capital investments for each option.
hallmark investment process is a gap in time, usually more than one year, between the investment of money, property or property rights and earning income. The main drawback of the previously existing domestic methods was ignoring the time estimate of costs and revenues.
The transition to market relations, the adoption of legislative acts relating to investment activities, gave investors the freedom to choose:
Investment objects;
Criteria for evaluating economic efficiency;
Sources of funding;
Ways to use the end results.
Therefore, when evaluating investment attractiveness projects, it is necessary to take into account inflationary processes, investment opportunities, the need to service the capital attracted for financing.
Project evaluation complicated methods is based on the fact that the streams of income and expenses for the project, reflected in the business plan, are not comparable. For an objective assessment, it is necessary to compare the costs of the project with the income reduced to their current value at the time of the costs, based on the level of risk for the project being evaluated, i.e. income must be discounted.
Economic evaluation project characterizes its attractiveness compared to other investment options. When evaluating investment projects, taking into account the time factor, the following indicators:
The period (term) of the payback of the project;
Net present value of income;
The rate of return (profitability ratio) of the project;
Internal rate of return of the project;
Modified rate of return;
Rate of return financial management.
Assessment of the investment attractiveness of the project involves the use, as a rule, of the entire system of indicators. This is due to the fact that each method has some disadvantages that are eliminated in the process of calculating another indicator. The economic content of each indicator is not the same. The analyst receives information about various aspects of the investment project, so only a set of calculations will make it possible to make the right investment decision.
10.1. The payback period (term) of the project
The payback period is defined as the expected number of years required to fully recover the investment costs. Payback period
T ok = Number of years prior to the payback year + (Unrecovered value at the beginning of the payback year / Cash flow during the payback year)
Example (conditional). Consider the methodology for calculating the payback period. The investment project "Uranus" requires an investment of 1000 den. units, the projected income stream will be: in the first year - 200; in the second year - 500, in the third year - 600, in the fourth year - 800, in the fifth year - 900. Discount rate - 15%.
Calculations of a simple (static) method indicate that the project will pay off in two and a half years. However, this period does not take into account the required rate of return on investment in a particular area. More objective results are obtained by a technique based on a temporary assessment of the cash flow.
To determine the payback period, you must:
2) calculate the accumulated discounted cash flow as
the algebraic sum of the cost and revenue stream of the project. Accumulated
discounted cash flow is calculated before the first
positive value;
3) find the payback period using the formula.
Let's calculate the payback period of the Uranium project according to table 1.
Table 1 - The process of recovering the initial investment(den. units)
|
Flow |
Period |
|||||
|
Cash, from the business plan Discounted Cash Accumulated discounted cash |
(1000) (1000) 1000 |
|||||
We get:
T ok \u003d 3 + 54/458 \u003d 3.1 years
The period actually required to recover the invested amount, taking into account the time factor, is 0.6 years longer than the period determined by the simple method.
This indicator determines the period during which investments will be “frozen”, since the real income from the investment project will begin to flow only after the payback period has expired. When selecting options, preference is given to projects with the shortest payback period.
It is advisable to calculate the payback period for projects financed by long-term obligations. The payback period for the project must be shorter than the period of use of borrowed funds, established by the lender.
The indicator is a priority if the main thing for an investor is the fastest possible return on investment, for example, the choice of ways to financially recover bankrupt enterprises.
The disadvantages of this indicator are as follows:
The calculations ignore the income received after the proposed payback period of the project. Consequently, when selecting project options, serious miscalculations can be made if the application of this indicator is limited;
Using it for analysis investment portfolio requires additional calculations. The payback period for the portfolio as a whole cannot be calculated as a simple average.
10.2. Net present value of earnings
Method net worth income allows you to classify projects and make decisions based on a comparison of costs with income from an investment project, reduced to the current cost.
To calculate the net present value of income (PTSD) required:
1) determine the present value of each amount of the income stream, based on the discount rate of the period of income occurrence;
2) sum up the reduced income for the project;
3) compare the total present value with the cost of the project and calculate the net present value of the income:
PTSD \u003d PD - PR,
where PD- total reduced income;
ETC - the costs of the project.
Projects with a negative value PTSD, investor rejects. When considering several options, preference is given to a project with maximum value this indicator.
We calculate the indicator PTSD for the analyzed project "Uranium", taking into account the data in Table 2.
Plus PTSD shows how much the value of the investor's assets will increase from the sale this project. Therefore, preference is given to the project with the highest net present value of income. Index PTSD refers to the category of absolute, which allows you to summarize the results of selected projects to determine PTSD for the investment portfolio as a whole.
Table 2 - Calculation of the total discounting of income(den. units)
|
Flow |
Period |
|||||
|
Cash, from the business plan |
(1000) |
|||||
|
Discounted Cash |
(1000) |
|||||
|
Total present stream of income |
(174 + 378 + 394 + 458 + 447) = 1851 |
|||||
|
PTSD |
1851-1000 = + 851 |
|||||
The disadvantages of this indicator are:
Absolute value PTSD at comparative analysis investment projects does not take into account the volume of investments for each option;
Value PTSD on the project depends not only on the amount of costs and the distribution of the income stream over time. The results are significantly affected by the discount rate applied by analysts. The assessment of the level of risk is carried out subjectively.
Let's consider the impact of the discount rate on the profitability of the Uranium project (Table 3).
Table 3 - Change in PTSD depending on the growth of the discount rate
|
Discount rate, % |
|||||
|
Net present value of income, den. units |
1526 |
An increase in the discount rate reduces the amount of real growth in assets. Consequently, the same project under different conditions, estimated by the discount rate, will give different results and may turn from profitable to unprofitable.
10.3. Rate of return (profitability ratio) of the project
This indicator reflects the effectiveness of compared investment projects, which differ in terms of costs and income streams.
Project rate of return (SDP) calculated as a ratio PTSD according to the project to the amount of investments:
PSD = PTSD / PR * 100%
There is another option for calculating this indicator as the ratio of the amount of reduced income to reduced expenses:
SDP = PD / PR
The rate of return for the Uranus project is: (851: 1000) * 100% = 85.1%, or 1851: 1000= 1.85.
According to the economic content, the rate of return of the project shows the value of the increase in assets per unit of investment.
If the index is greater than one, then the investment project has a positive net present value of income. However, preference is given to the project with the maximum SDP.
When making investment decisions, analysts prefer the indicator PSD, if the value PTSD in the considered projects is the same. Index PTSD is absolute, so it is possible for projects to have an equal net present value of earnings.
Example. Project X requires an investment of 900 den. units and provides a stream of income in the amount of 300, 400, 600. Project Y costs 325, and the expected stream of income will be 100, 200, 300. The discount rate used in making the decision is 10% (table 4).
The analyst must choose one of the two proposed calculations.
Table 4 - Project characteristics X and Y
|
Index |
Project X |
Project U |
|
Total present income |
1055 |
|
|
Project costs |
||
|
PTSD |
In this situation, it is impossible to select a project using the net present value method, and the indicator should be used SDP. In projectX :
SDP \u003d 155/900 * 100 \u003d 17.2%
In project W:
SDP \u003d 157/325 * 100 \u003d 43.3%
The project is more profitable for the investor U, since it has a rate of return of 2.5 times more.
The advantages of the rate of return of the project are that this indicator is relative and reflects the efficiency of the unit of investment. In addition, in conditions of limited resources, this indicator allows you to create the most effective investment portfolio.
The main drawback of the indicator is the dependence of the calculation results on the discount rate.
10.4. Project internal rate of return
Project internal rate of return (VSDP) is a discount rate that equates the amount of the reduced income from the project to the amount of investment (costs). WHDP provides zero net present value of income. Evaluation of investment projects using WHDP is based on determining the maximum discount rate at which projects will break even.
Calculation WHDP without a financial calculator is quite laborious, as it is based on the use of the interpolation method and discount tables.
When calculating the internal rate of return of a project:
1) an arbitrary discount rate is chosen, and on its basis the total present value of the income from the project is calculated;
2) the costs of the project are compared with the resulting present amount of income;
3) when the initial arbitrary discount rate does not give
zero net present value of income, the second rate is chosen
discounting according to the following rule:
if PTSD > Oh, then the new discount rate must be greater than the original one;
if PTSD< Oh, then the new discount rate must be less than the original;
4) the selection of the second discount rate is carried out until the total current value of income is both greater and less than the project costs;
5) the internal rate of return of the project is found by interpolation:
a) the interval is determinedb) a proportion is drawn up and an equation is solved
c) calculated
VSDP \u003d art. d. 1 + X .
Using the above method, we calculate the internal rate of return for the Mars project, according to which the costs will be 1200, income - 50, 200, 450, 500, 600 den. units
The calculation sequence is as follows:
1) find the amount of the income stream, discounted at a rate of 5%, it will be:
48 + 181 + 389 + 411 + 470 = 1499;
2) define PTSD
1499 - 1200 = 299 i.e. PTSD > 0;
3) choose new rate discounting, it should be more than 5%, since PTSD > 0;
4) calculate the total income stream discounted at a rate of 20%,
42 + 139 + 260 + 241 + 241 = 923;
5) define PTSD
923 - 1200 \u003d - 277, i.e. PTSD< 0;
6) calculate WHDP:
Denote the interval
|
[ |
1499 |
|||
|
1200 |
5% + X |
|||
Set up a proportion and solve the equation
X = 7.8%;
calculate
ARDP= 5 + 7.8 = 12,8%.
Preference is given to the project with the highest value of this indicator. Usage WHDP in the analysis and selection of investment projects is based on the interpretation of this indicator. WHDP is an individual measure specific project, represented not only by a given amount of costs, but also by an income stream, individual both in terms of the value of each element of the flow, and in terms of the time of occurrence.
Example. Consider the influence of the distribution of income over time on the indicator VSDP. Let's analyze the revenue streams for three projects X, Y, Z (Table 5).
Table 5 - The impact of cash flow on the value WHDP den. units
|
Index |
Project X |
Project U |
Project Z |
|
Expenses |
(1200) |
(1200) |
(1200) |
|
Income: |
|||
|
First year |
|||
|
second year |
|||
|
third year |
|||
|
WWDP, % |
All three projects require the same costs, the same amounts of income in the form in which they will be presented in financial statements respective years. However, differences in the distribution of the income stream over time have a significant impact on the indicator VSDP. The internal rate of return of the Y project is almost 1.6 times higher than that of the project Z.
WHDP can be interpreted as a kind of "margin of safety" of the project, reflecting its stability in the face of a possible increase in risk. Adverse changes affecting both the economy as a whole and a specific type of business require an adequate level of discount rate. Projects with the maximum value WHDP more attractive, as they are potentially capable of withstanding large loads on investment capital associated with a possible increase in its value.
Another interpretation is also possible: WHDP is considered as a single deposit rate, providing equal investment attractiveness for two investment options. In the first option, the deposit is opened in the year of the project for an amount equal to its cost. In the second option, funds are placed on the replenished deposit account, coinciding in amount and period of occurrence with the income stream for the analyzed project. The value of the deposit rate must ensure that the accumulated amount at the end life cycle project.
Calculation of indicators WHDP in the world practice of project financial analysis is an important stage. Comparison of calculated value WHDP with the required rate of return on capital in this particular area allows to reject inefficient projects at an early stage.
However, the method of evaluating projects based on comparison WWDP, there are serious shortcomings arising from the economic content of the indicator:
It is difficult to use the ARDP to assess the investment portfolio as a whole, since, unlike the PTSD indicator, it is not summed up and characterizes only a specific project;
The ARCF requires particular application when analyzing projects that have several large negative cash flows during the economic life of the project. Due to repeated investing, the net present value of income will go to zero several times. Therefore, the WWDP will have the same number of solutions. For analysis, it is recommended to use the minimum value of the internal rate of return of the project;
The project appraisal is based on a hypothetical proposal that free cash flows are reinvested at an estimated rate equal to VSDP. In practice, liquid deposit investments bring a minimum return, the level of which is usually below the required rate of return on capital.
In this way, WHDP is an abstract indicator, but its use in the selection of projects gives good results.
In the process of selecting one of two projects (for example, projects A and B), the analyst may encounter the following situations:
1. Project B provides a large increase in assets (HTSD) and has the best parameters for WWAP on compared with projects A (Fig. 1).
Rice. one
AT this example project B is certainly attractive.
2. Project A provides a greater increase in assets, project B has better parameters for WHDP(Fig. 2).
From fig. 2 shows that there is some discount rate X , which equalizes the values in projects A and B PTSD. This discount rate is a critical point that changes the attractiveness of the projects being evaluated:
If the discount rate applied by the analyst is less than the critical value, then project A is more attractive;
Rice. 2
If the discount rate that assesses the risk of investing in a given project (object of ownership) is greater than the critical value, then the investment attractiveness of the projects changes, and project B becomes more profitable.
10.5. Modified rate of return
The modified rate of return (MRR) of an investment project eliminates a significant drawback of the project's internal rate of return, which occurs in the event of repeated cash outflows. An example of such repeated outflows is real estate investments that involve purchase on an installment plan or construction that takes place over a period of several years. Method of calculation WHDP involves the reinvestment of amounts intended for investment in an investment project in subsequent years, at a rate equal to VSDP. However, in practice this is unlikely.
If project costs are incurred over several years, then temporarily available funds, which the investor will have to invest in the project in the future, can be invested in another secondary project. The main requirements for temporary investments are security and liquidity, since the invested funds must be returned exactly in accordance with the cost schedule for the main investment project.
The value of the safe liquid rate is determined by analyzing the financial market. In each case, the analyst determines the value of the safe liquid rate individually, but in any case, its level is relatively low.
Discounting costs at a safe liquid rate makes it possible to calculate their total present value, the value of which makes it possible to more objectively assess the level of profitability of an investment project.
When calculating the modified rate of return:
1) the safe liquid rate of return is determined;
2) the costs of the project, distributed over the years of investment, are discounted at a safe, liquid rate;
3) a modified cash flow is compiled;
4) the MRR is calculated similarly to the calculation of the internal rate of return, but based on the modified cash flow.
Example. Consider the procedure for calculating the MSD. There is a project "Venus", the costs of which are 750, 750, the income stream by years: 400, 500, 700, 600 (money units).
Funds intended for investment in the project in the second year may be placed for one year in safe project such as government securities. If they provide an income of 4% per annum, then the investor in the first year must invest:
750 den. units - in the main project;
750 JPV ] 4% = 750 0.9615 = 721 den. units - in government securities.
Thus, the total investment will be 1471 den. units (Fig. 3).
Fig.3. Cost modification at safe liquidity rate
Further calculation is carried out in the same way as the calculation of the internal rate of return of the project - by interpolation. Cash flow in a modified form is presented in table 6.
Table 6 - Cash flow modification at a safe liquidity rate 1
Cash, from the business plan
(750)
(750)
Modified cash MSD = 11.8%
(1471)
10.6. Financial management rate of return
Improving the methods for assessing the attractiveness of investment projects touches upon the problem of the investor's use of income received from the implementation of projects. These funds will be invested in various new projects based on financial opportunities and investor policies. The acceptable level of risk for such projects may be higher than when investing temporarily free funds intended for the main project. In addition, diversification of investments and, consequently, the multiplicity of investment rates of return are possible. The financial manager, who determines financial policy at the stage of receiving income from the main project, calculates the average, or "circular", rate of return on future investments.
When calculating the financial management rate of return (RFRM):
1) a safe liquid rate of return is determined;
2) the amount of costs for the investment project, discounted at a safe liquidity rate, is calculated;
3) a "circular" rate of return is determined;
4) the total future value of income from the analyzed investment project, accumulated at the "circular" rate of return, is calculated;
5) a modified cash flow is compiled;
6) the rate of return of financial management is calculated similarly to the calculation WHDP based on modified cash flow (clause 5).
Example. Compute SDFM for the Venus project. The current cost of the project costs is 1471 (see the previous paragraph). Let's determine the future value of income from the Venus project if the "circular" rate of return is 8%:
400[FV]3% =400 1.2597 = 504;
5 00 [FV]2 8 * =500-1.1664 = 583;
700[FV]1 8% = 700 1.08= 756;
600[ FV ] 0 8% =600 1.0 = 600;
Sum = 2443 (Fig. 4).
Rice. four. Modification of the income stream at a "circular" rate of return
Table 7 Modified cash flow for the Venus project
|
Flow |
Period |
|||||
|
Cash, from the business plan |
(750) |
(750) |
||||
|
Modified monetary SDFM = 10.7% |
1471 |
2443 |
||||
The calculation of the project's internal rate of return (Table 7) will be based on the cash flow modified at the safe liquidation rate (applied to costs) and the round-robin rate of return (applied to the revenue stream).
conclusions
Assessment of the investment attractiveness of projects involves comparing the costs and income of the project, taking into account the time factor.
The discount rate used to calculate the value of income depends on the degree of risk of the project being evaluated.
The appraiser can use six indicators that reflect various aspects of the economic efficiency of the project. The final decision on investment attractiveness can only be made on the basis of integral information obtained using the entire system of indicators.
The payback period (term) of the project informs about the time period required to return the invested funds, but does not take into account the dynamics of income in the subsequent period.
The net present value of income reflects the real increase in assets from the implementation of the project being evaluated. However, the indicator significantly depends on the applied discount rate and does not take into account the amount of project costs.
The rate of return (profitability ratio) of the project reflects the amount of net present value received per unit cost of the project. The indicator depends on the applied discount rate, i.e. is subjectively influenced.
The internal rate of return of the project reflects the "margin of safety" of the project, since according to economic content is the discount rate that equalizes the present revenues with the costs of the project. The disadvantage of the method is the hypothetical assumption of reinvestment at the internal rate of return, which is impossible in practice. In addition, if during the analyzed period sufficiently large costs occur several times, the indicator has a multiple solution.
The modified rate of return is calculated for projects that assume the distribution of costs over the years. Therefore, free funds intended for investment in the main project in subsequent periods can be temporarily invested in other projects that meet the conditions of safety and liquidity. Since secondary projects provide some income, the need for investment in the initial period will be reduced based on the level of the safe liquidity discount rate.
The rate of return of financial management assumes that the income received from the project can be invested in several projects with different levels of return. The analyst determines the average, or “circular”, rate of return and, on its basis, calculates the amount of savings by the time the last amount of income occurs. Different rates are used to adjust the cost stream and revenue stream as close to reality as possible.
In the fourth section, we will study the potential ability of the project to provide sufficient growth rates for invested funds. The analysis is based on determining the performance indicators of investment projects.
The methods used in the economic evaluation of the effectiveness of investment projects are divided into static (simple) and dynamic (complex).
Static Methods are used for a quick and approximate assessment of the attractiveness of investment projects, they are used at the preliminary stage of project examination.
The main feature of simple indicators for evaluating the effectiveness of projects is that their calculation does not take into account the unequal cash flows that arise at different points in time, the indicators are calculated without discounting.
In practice, two indicators are most often used: return on investment and payback period.
ROI(ROI - return of investments) makes it possible to establish not only the fact of the profitability of the project, but also to assess the degree of this profitability. Return on investment (or rate of return) can be used to comparative assessment project performance with alternative investment options. In particular, a project can be considered economically profitable if its rate of return is not less than the bank discount rate.
The return on investment is calculated as the ratio of the average annual profit (NP avg / year.) to the total investment costs (K) according to the formula:
| (8) |
If the calculated return on investment (rate of return) satisfies the level required by investors, then the project is attractive to them.
Payback period(PP - payback period) of the project determines the calendar period of time from the moment of the initial investment of capital in the investment project until the moment when the cumulative total of the net total income (net cash flow) becomes equal to zero. This is the period of time during which the project does not make a profit, that is, the entire amount of money generated by the project is directed to the return of the initially invested capital.
To calculate the payback period, you must:
2) determine at what year of life the cumulative cash flow takes a positive value;
3) find the part of the investment amount not covered by cash receipts in the period preceding the year determined in the previous step;
4) divide this uncovered balance of the investment amount by the amount of cash receipts in the period in which the cumulative flow takes a positive value.
The result obtained will characterize the share of this period, which, in total with the previous whole periods, forms the total value of the payback period.
The payback period can also be calculated by gradually subtracting the amount of depreciation and net profit for the next planning interval from the total capital costs. The interval for which the balance is leveled or becomes negative, and is the payback period. If this result is not achieved, then the payback period exceeds the established life of the project.
If the payback period is within the lifetime of the project under consideration, then the ratio between net annual real money flows and initial investment is favorable.
Table 10 should be used to calculate simple performance indicators for an investment project.
Table 10 - Calculation of static indicators of the effectiveness of the investment project
| Indicators | years | Total | ||||||||||
| 1. Net profit, thousand den. units (Table 8 item 12) | - | - | 1857,12 | 2990,32 | 3411,92 | 3833,52 | 4255,12 | 4676,72 | 5098,32 | 5519,92 | 5941,52 | 37584,48 |
| 2. Average annual profit, thousand den. units (clause 1/10) | - | - | - | - | - | - | - | - | - | - | - | 3758,45 |
| 3. The total volume of investment costs, thousand den. units (Table 5) | - | - | - | - | - | - | - | - | - | - | - | |
| 4. Return on investment, % (clause 2/clause 3) | - | - | - | - | - | - | - | - | - | - | - | 9,28 |
| 5.Cash flow by operating and investment activity(Table 9 p.6) | -40500 | 7315,28 | 9801,84 | 10170,32 | 10141,92 | 10113,52 | 10085,12 | 10056,72 | 10028,32 | 9999,92 | 13166,22 | 60379,18 |
| 6. Accumulated cash flow from operating and investment activities | -40500 | -33184,72 | -23382,88 | -13212,56 | -3070,64 | 7042,88 | 17128,00 | 27184,72 | 37213,04 | 47212,96 | 60379,18 | - |
| 7. Payback period, years (4+p.6 4th year/p.5 5th year) | 4,30 |
Throughout the billing period, there is an increase in net profit. In the second year, the value of net profit amounted to 1857.12 thousand den. units, and in the tenth 5941.52 thousand den. units At the same time, the size of the average annual profit is 3758.45 thousand den. units Since the company had a loss in the first year, there is no net profit this year (see Table 8). The loss is covered by profit before tax in the second year. The return on investment was 9.28%, and the payback period was 4.30 years. The calculated static indicators (ROI and payback period) are used to quickly assess the attractiveness of an investment project.
For a more accurate assessment of the investment project, we calculate the dynamic indicators.
Dynamic Methods investment calculations are used to justify investment projects when we are talking about long-term projects that are characterized by income and expenses that change over time.
To assess the investment attractiveness of the project, all indicators of the future activity of the investment project are adjusted, taking into account the decrease in the value of cash flows as the transactions associated with it move away in time. For this, discounting is used - an operation that is the reverse of compound interest, the process of recalculating the future sum of money into the real one.
In practice, the methods for calculating net present value (NPV), return on investment index (PI), internal norm return (IRR) and discounted payback period (DPP).
Net present value(NPV - net present value) - this is the difference between the current, discounted on the basis of the discount rate, the cost of receipts and investment costs.
The formula for calculating this indicator is as follows:
where IC t - investment costs in period t, den. units
In this case, if:
NPV > 0, then the project should be accepted (the project is effective at a given discount rate);
NPV< 0, то проект следует отвергнуть;
NPV = 0, then the project is neither profitable nor unprofitable (does not bring profit or loss).
One of the factors determining the value of the net present value of the project is the scale of activities, which is expressed in terms of investment, production and sales. Therefore, the application of this method is limited for comparison various projects: a large NPV value will not always correspond to the most efficient use investment . In such a situation, it is reasonable to calculate return on investment index(PI - profitability index) according to the formula:
Discounted investment costs, den. units
If: PI > 1, then the project should be accepted;
PI< 1, то проект следует отвергнуть;
PI = 1, then the project is neither profitable nor unprofitable.
The profitability index is a relative indicator, so it is convenient when choosing one project from a number of alternative ones with approximately the same NPV values, or when completing an investment portfolio with the maximum total value of net present value.
Internal rate of return(IRR - internal rate of return) characterizes the effectiveness of investments in the project at a certain point in time. The internal rate of return is the discount rate at which the net present value is zero. Therefore, at this discount rate, the value of the discounted cash receipts is equal to the discounted investment costs. In the case when investments and returns from them are given in the form of a stream of payments, the internal rate of return is defined as a solution to the equation:
The internal rate of return is found by iterative selection of discount rate values when calculating the net present value of the project. The algorithm for determining the internal rate of return by the selection method is as follows:
1) two values of the discount rate are selected and NPV is calculated. For one value of the discount rate, the NPV value must be greater than zero, and for another, it must be less than zero;
2) coefficient values and NPV values are substituted into the formula (interpolation):
| , | (12) |
where r 1 is the discount rate at which NPV is positive;
r 2 - discount rate at which NPV is negative;
NPV 1 - the value of the positive value of NPV;
NPV 2 - the value of the negative value of NPV.
In order for a project to be accepted, it must generate a certain rate of return. The internal rate of return of the project is compared with the investor's required rate of return on invested capital.
In the case when the internal rate of return is equal to or greater than the required rate of return on capital required by the investor, investment in this investment project is justified, and the question of its acceptance can be considered. Otherwise, investments in this project are inappropriate.
If a comparison of alternative (mutually exclusive) investment projects in terms of net present value and internal rate of return leads to opposite results, preference should be given to net present value.
Thus, the internal rate of return (profitability) for any project is the maximum rate of interest that can be used to finance the project without harming the interests of the firm and shareholders. The enterprise can make any investment decisions, the level of profitability of which is not lower than the price of funds raised for this project.
Discounted payback period(DPP) - the number and duration of periods during which there is a full recovery of invested funds.
Choice investment decision carried out according to the principle: the shorter the payback period; the more efficient they are. According to this principle, any project can be accepted, the payback period of which is less than some predetermined due date(for example, the rate of return).
This indicator can be effectively used along with indicators of net present value or internal rate of return.
The discounted payback period is equal to the minimum number of years (n) at which
Obviously, in the case of discounting, the payback period will increase. Therefore, a project that is eligible under the PP criterion may not be eligible under the DPP criterion.
If the net discounted income is positive, the profitability index is greater than one, the internal rate of return significantly exceeds the threshold rate of return for the firm, then the project can be accepted, as it satisfies all the criteria for assessing the economic efficiency of investment projects.
The calculation of complex performance indicators of the investment project is shown in Table 11. The accumulated discounted cash flow for operating and investment activities is shown in Figure 3.
Table 11 - Calculation of dynamic performance indicators of the investment project
| Indicators | years | Total | ||||||||||
| 1. Cash flow from operating and investment activities, thousand den. units (Table 9 p.6) | -40500 | 7315,28 | 9801,84 | 10170,32 | 10141,92 | 10113,52 | 10085,12 | 10056,72 | 10028,32 | 9999,92 | 13166,22 | 60379,18 |
| 2. Discount factor r =14 | 0,877 | 0,769 | 0,675 | 0,592 | 0,519 | 0,456 | 0,400 | 0,351 | 0,308 | 0,270 | - | |
| 3. Discounted cash flow from operating and investment activities, thousand den. units (item 1*item 2) | -40500 | 6415,50 | 7537,61 | 6864,97 | 6004,02 | 5248,92 | 4598,81 | 4022,69 | 3519,94 | 3079,98 | 3554,88 | 10347,32 |
| 4. Accumulated discounted cash flow from operating and investment activities, thousand den. units | -40500 | -34084,50 | -26546,89 | -19681,92 | -13677,90 | -8428,98 | -3830,17 | 192,52 | 3712,46 | 6792,44 | 10347,32 | - |
| 5. Discounted positive cash flow, thousand den. units (item 3 all positive values) | - | - | - | - | - | - | - | - | - | - | - | 50847,32 |
Table 11 continued
| Indicators | years | Total | ||||||||||
| 6. Discounted value of investment costs, thousand den. units (Table 5) | - | - | - | - | - | - | - | - | - | - | - | |
| 7. Net present value, thousand den. units (clause 5-clause 6) | - | - | - | - | - | - | - | - | - | - | - | 10347,32 |
| 8. Index of return on investment (clause 5 / clause 6) | - | - | - | - | - | - | - | - | - | - | - | 1,26 |
| 9. Internal rate of return, % | - | - | - | - | - | - | - | - | - | - | - | 19,88 |
| 10. Payback period, taking into account discounting, years (6 + line 4 year 6 / line 3 year 7) | 6,95 |
Rice. 3 Accumulated discounted cash flow from operating and investing activities
Discounted positive cash flow amounted to 50847.32 thousand den. units, the discounted value of investment costs is equal to 40500 thousand den. units, thus, the net discounted income amounted to 10347.32 thousand den. units (NPV>0). The return on investment index is 1.26 (PI>1), the internal rate of return was 19.88% - this is the maximum interest rate that can be used to finance the project without harming the interests of the company and shareholders. Figure 3 shows the project payback period of 6.95 years.
Thus, the calculated indicators reflect the economic efficiency of the investment project.
The internal rate of return is calculated in Table 12 and shown in Figure 4.
Table 12 - Calculation of the internal rate of return of an investment project
| Indicators | years | Total | ||||||||||
| 1. Cash flow from operating and investment activities, thousand den. units (Table 11 item 1) | -40500 | 7315,28 | 9801,84 | 10170,32 | 10141,92 | 10113,52 | 10085,12 | 10056,72 | 10028,32 | 9999,92 | 13166,22 | - |
| 2. Discount factor at r =20 | 0,833 | 0,694 | 0,578 | 0,482 | 0,402 | 0,335 | 0,279 | 0,233 | 0,194 | 0,162 | - | |
| 3.Discounted cash flow at r =20 (item 1*item 2) | -40500 | 6093,63 | 6802,48 | 5878,44 | 4888,41 | 4065,64 | 3378,52 | 2805,82 | 2336,60 | 1939,98 | 2132,93 | -177,55 |
| 4. Discount factor at r =19 | 0,840 | 0,706 | 0,593 | 0,498 | 0,418 | 0,351 | 0,295 | 0,248 | 0,208 | 0,175 | - | |
| 5. Discounted cash flow at r = 19 (item 1*item 4) | -40500 | 6144,84 | 6920,10 | 6031,00 | 5050,68 | 4227,45 | 3539,88 | 2966,73 | 2487,02 | 2079,98 | 2304,09 | 1251,77 |
| 6. Internal rate of return, % | - | - | - | - | - | - | - | - | - | - | - | 19,88 |
Rice. 4 Determination of the internal rate of return
(Discounted payback period, DPP)
Criteria and methods for evaluating investment projects
The financial and economic evaluation of investment projects occupies a central place in the process of substantiating and selecting possible options for investing in operations with real assets. To a large extent, it is based on project analysis. The purpose of the project analysis is to determine the result (value) of the project. As a rule, the following expression is applicable for this:
Project result = Project price - Project costs
Predictive assessment of the project is a rather difficult task, which is confirmed by a number of factors:
- investment expenditures can be made either on a one-time basis or over a long period of time;
- the period of achievement of the results of the implementation of the investment project may be greater than or equal to the billing period;
- carrying out long-term operations leads to an increase in uncertainty in the assessment of all aspects of investments, that is, to an increase in investment risk.
The effectiveness of an investment project is characterized by a system of indicators reflecting the ratio of costs and results, depending on the interests of its participants.
Evaluation of the overall project effectiveness for the investor
Investment projects can be both commercial and non-commercial. Even with non-commercial projects, there are opportunities spent and opportunities gained.
The difference between investment projects and the operating activities of the organization is that the costs intended for a one-time acquisition of some opportunities are not related to investments. In this case, the investor is a person who invests his opportunities for reuse, making them work to create new opportunities.
If for commercial projects there are ways to evaluate their effectiveness, then how to evaluate the effectiveness of non-commercial projects? Efficiency is generally understood as the degree of compliance with the goal. The goal must be set precisely, in detail and allow only a clear answer - whether it has been achieved or not. At the same time, you can achieve the goal in different ways, and each path has its own costs.
To decide on the implementation of a commercial project, an assessment of its economic efficiency is carried out. In the case of a non-commercial project, if it is decided to achieve the goal, then the choice is to determine the most effective way. At the same time, non-financial criteria should take precedence over financial performance. But at the same time, the goal must be achieved in the least costly way.
Also when evaluating a non-commercial project:
- the stability of the investor to the implementation of the project should be taken into account - whether the investor will withstand the implementation of the project;
- when determining alternative options of equal quality, the cheapest option is usually chosen;
- it is desirable to plan the movement of costs (investments) in dynamics in order to calculate forces in advance, provide for a deficit and take care of attracting additional resources, if necessary.
Assessment of project externalities
The second nuance of project evaluation is that the project will have value not only in the eyes of the investor. For example, investing in the education of certain people will no longer benefit them, but the community as a whole, which then used the discoveries and inventions of scientists for their own needs.
Investment projects of commercial organizations, along with commercial significance, also have the following effects:
1. The social effect is assessed by the benefit of the project for the society, or living around the place where the plan is implemented, or working on the project, and consists of:
- in raising the level of salaries;
- in the development of infrastructure and other opportunities for the population around the project site.
2. The tax effect is estimated by the volume of projected tax revenues to the budgets of all levels (municipal, regional, federal).
3. The budgetary effect is estimated if the project is fully or partially financed from the budget. It is determined how much money after the implementation of the project will be returned through tax payments per certain period time.
4. An environmental effect takes place if the project in one way or another affects the ecological situation.
All the results of the plan are significant for the rest of the parties, since the company and the project are surrounded by community, people, state, nature. If the plan improves the environment, then it is probably better for a commercial organization that implements an investment project, since everything in the world is interconnected.
General approaches to determining the effectiveness of investment projects
Investment decision-making is based on the assessment of the economic efficiency of investments. A market economy requires taking into account the impact on the efficiency of investment activity of environmental factors and the time factor, which are not fully evaluated in the calculation of these indicators.
At present, the Guidelines for evaluating the effectiveness of investments and their selection for financing have been adopted (approved by the Ministry of Economy of the Russian Federation, the Ministry of Finance of the Russian Federation and the Gosstroy of Russia, June 21, 1999 No. VK477).
They quite fully reflect the results of scientific research by domestic and foreign economists in the field of methods for evaluating the effectiveness of investment projects.
Let us consider the main methods for evaluating the effectiveness of investment projects in more detail and find out their main advantages and disadvantages.
Static evaluation methods
Payback period (PP)
The most common static indicator for evaluating investment projects is the payback period ( Payback period, PP).
The payback period means the period of time from the moment the investment project is launched until the commissioning of the facility, when the income from current activities becomes equal to the initial investment ( capital expenditures and running costs).
This indicator gives an answer to the question: when will the full return on invested capital occur? The economic meaning of the indicator is to determine the period for which the investor can return the invested capital.
As a metric, the RR criterion is simple and easy to understand. However, it has its drawbacks, which we will consider in more detail during the analysis ( DPP), since these shortcomings apply to both static and dynamic indicators of the payback period. The main disadvantage of this ratio is that it does not take into account the time value of funds, that is, it does not distinguish between projects with the same income stream balance, but with a different distribution over the years.
Investment efficiency ratio (Account rate of return, ARR)
Investment efficiency ratio ( Account rate of return, or ARR) or accounting rate of return or profitability ratio of the project. There are several algorithms for calculating this indicator.
The first calculation option is based on the ratio of the average annual profit (minus deductions to the budget) from the implementation of the project for the period to the average investment:
The second option for determining the project profitability ratio is as follows:
Dynamic evaluation methods
Net present value (NPV)
The value of NPV is calculated as the difference between the discounted cash flows of income and expenses incurred in the process of implementing the investment for the forecast period. The essence of the criterion is to compare the present value of future cash receipts from the implementation of the project with the investment costs necessary for its implementation.
The conditions for making an investment decision based on this criterion are as follows:
if NPV > 0, then the project should be accepted;
if NPV< 0, то проект принимать не следует;
if NPV = 0, then the adoption of the project will not bring any profit or loss.
This method is based on following the main target set by the investor - maximizing its final state or increasing the value of a commercial organization. Following this target setting is one of the conditions for a comparative evaluation of investments based on this criterion.
With all the advantages of this indicator, it also has significant disadvantages. Due to the difficulty and ambiguity of forecasting and generating cash flow from investments, as well as the problem of choosing a discount rate, there may be a danger of underestimating the risk of a project.
Profitability index (PI)
Profitability index- a relative indicator of the effectiveness of an investment project and characterizes the level of income per unit of costs, that is, the effectiveness of investments - the greater the value of this indicator, the higher the return on the monetary unit invested in this project. This indicator should be given preference when completing an investment portfolio in order to maximize the total value of NPV.
The conditions for accepting a project under this investment criterion are as follows:
if PI > 1, then the project should be accepted;
if PI< 1, то проект следует отвергнуть;
if PI = 1, the project is neither profitable nor unprofitable. It is easy to see that when evaluating projects involving the same amount of initial investment, the PI criterion is fully consistent with the NPV criterion.
Internal rate of return (IRR)
The meaning of the calculation internal rate of return when analyzing the effectiveness of an investment project is as follows: IRR shows the maximum allowable relative level of expenses that can be associated with this project. For example, if the project is financed entirely by a loan commercial bank, then the IRR value shows the upper bound acceptable level bank interest rate, the excess of which makes the project unprofitable.
The economic meaning of this indicator is as follows: an enterprise can make any investment decisions, the level of profitability of which is not lower than the current value of the CC indicator (price of the source of funds for this project). It is with him that the IRR indicator calculated for a specific project is compared, while the relationship between them is as follows:
if IRR > CC, then the project should be accepted;
if IRR< CC, то проект следует отвергнуть;
if IRR = CC, then the project is neither profitable nor unprofitable.
The advantage of the internal rate of return method in relation to the net present value method is the possibility of its interpretation. It characterizes the accrual of interest on the capital expended (return on capital employed).
The NPV, IRR and PI criteria most commonly used in investment analysis are actually different versions of the same concept, and therefore their results are related to each other. Thus, we can expect the following mathematical relationships to be fulfilled for one project:
if NPV > 0, then IRR > CC(r); PI > 1;
if NPV< 0, то IRR < CC(r); PI < 1;
if NPV = 0, then IRR = CC(r); PI = 1.
There are techniques that adjust the IRR method for application in a particular non-standard situation. One of these methods is the modified internal rate of return (MIRR) method.
Modified internal rate of return (MIRR)
Modified rate of return ( MIRR) allows you to eliminate a significant drawback of the internal rate of return of the project, which occurs in the case of repeated outflows of funds. An example of such repeated outflows is an installment purchase or construction of a property over several years. The main difference of this method is that reinvestment is carried out at a risk-free rate, the value of which is determined on the basis of an analysis of the financial market.
In Russian practice, this may be the profitability of a fixed-term foreign currency deposit offered by Sberbank of Russia. In each case, the analyst determines the risk-free rate individually, but, as a rule, its level is relatively low.
Thus, discounting costs at a risk-free rate makes it possible to calculate their total present value, the value of which allows a more objective assessment of the level of investment return, and is a more correct method in case of making investment decisions with irrelevant (extraordinary) cash flows.
Discounted payback period (DPP)
The discounted payback period of the investment ( Discounted payback period, DPP) eliminates the disadvantage of the static payback method and takes into account the time value of money.
Obviously, in the case of discounting, the payback period increases, that is, always DPP > PP.
The simplest calculations show that such a technique, under conditions of a low discount rate, which is characteristic of a stable Western economy, improves the result by an imperceptible amount, but for significantly higher rate discounting characteristic of the Russian economy, this gives a significant change in the calculated value of the payback period. In other words, a project that is acceptable under the PP criterion may not be acceptable under the DPP criterion.
When using the PP and DPP criteria in the evaluation of investment projects, decisions can be made based on the following conditions:
- the project is accepted if the payback takes place;
- the project is accepted only if the payback period does not exceed the deadline set for a particular company.
One of the significant drawbacks of this criterion is that, unlike the NPV indicator, it does not have the property of additivity. In this regard, when considering a combination of projects, this indicator must be handled with care, given this property.
In general, the definition of the payback period is of an auxiliary nature with respect to the net present value of the project or the internal rate of return. In addition, the disadvantage of such an indicator as the payback period is that it does not take into account subsequent cash inflows, and therefore may serve as an incorrect criterion for the attractiveness of the project.
Ministry of Education and Science of the Russian Federation
Siberian Federal University
Institute of Architecture and Construction
Faculty of Economics
Center for staff development and retraining
COURSE WORK
on the course: "Economic evaluation of investment projects"
Performed:
Checked:
Krasnoyarsk-2007
Introduction
1. Economic analysis of investment projects.
1.1. Determining the benefits and costs of investment projects.
1.2. Calculation of performance indicators (Cost-Benefit Analysis).
1.3. Assessing project risks using the sensitivity analysis method.
2. Calculation of cash flows (Cash Flow Analysis).
2.1. Calculation of cash flows from operating, investment and financial activities and assessment of the financial feasibility of the project.
2.2. Evaluation of the social effectiveness of the project
2.3. Evaluation of project effectiveness by higher-level structures (regional efficiency)
2.4. Assessment of the commercial effectiveness of the project as a whole
2.5. Efficiency of participation of the enterprise in the project (share capital)
2.6. Efficiency from the position of the lender
2.7. Shareholder Efficiency
3. Comparison of two investment projects of different duration.
4. Evaluation of the effectiveness of portfolio investment.
5. Evaluation of projects in terms of capital rationing.
5.1. Selection of investment projects in case of short-term shortage of funds.
5.2. The choice of investment projects with a long-term shortage of funds.
6. Analysis of project risks using a decision tree.
Bibliographic list.
Introduction
One of the most important factors in the development of the economy is investment, that is long-term investments capital to create a new or improve and modernize the existing production apparatus for the purpose of making a profit.
Investment activity is inherent in any enterprise to one degree or another. Making an investment decision is impossible without taking into account the following factors: the type of investment, the cost of the investment project, the multiplicity of available projects, the limited financial resources available for investment, the risk associated with making a particular decision, etc.
In the very general sense investments - cash, target bank deposits, shares, shares and other securities, technologies, machines, equipment, licenses, including trademarks, loans, any other property or property rights, intellectual values invested in business objects in for the purpose of making a profit (income) and achieving a positive social effect. In this formulation, the concept of investment is closest in content to the market approach.
Under the conditions of centralized management of the economy, the term capital investments was used, i.e. financial resources spent on the construction of new and reconstruction, expansion and technical re-equipment operating enterprises (industrial capital investments), housing, communal and cultural construction (non-industrial capital investments).
The above definitions clearly show the difference in understanding the essence of investments in planned and market systems.
In a planned economy, investments acted as costs that differed from current costs only in a one-time nature. At present, both terms are used in domestic practice.
AT market economy investment is traditionally understood as the process of investing funds in any form to obtain income or some effect. This understanding is the most general and widespread. Sometimes investments are interpreted as a rejection of today's immediate consumption of goods in order to better meet the needs in subsequent periods. Thus, the essence of investment contains a combination of two aspects of investment activity: the cost of resources and the results obtained. Investments are made in order to obtain a result - quantitative (income) or qualitative (for example, in the field of education - building a school and increasing the number of educated people); they are useless if they don't work.
Investments can include both the full scientific, technical and production cycle of creating products (resources, services), and cover its elements: scientific research, design work, expansion or reconstruction of existing production, organization of new production or release of new products etc.
An investor is a natural or legal person(s) who invests in a project. If the investor and the customer are not the same person, the investor concludes a contract with the customer, controls the execution of contracts and makes settlements with other participants in the investment activity.
An investment project is a comprehensive plan of measures aimed at creating a new or modernizing an existing production facility in order to obtain economic benefits.
Any project is introduced into a real-life external environment: at the input, the project draws resources from it to create products or provide any services, and at the output, the environment accepts the results of project activities. For the success of the project, one cannot ignore its interaction with the external environment, which is carried out through a comprehensive examination of the project - a systematic, interconnected study of the internal and external environment of the project.
Depending on the areas of investment and the goals of their implementation, investment projects are divided into:
Production (capital investment in the creation of new, reconstruction and re-equipment of existing fixed assets and production capacities for various areas of the national economy);
Scientific and technical (development and creation of new and highly efficient products with new properties, new high-performance technologies and technological processes, etc.);
Financial (acquisition and formation of a portfolio of securities, purchase financial obligations, issue and sale of securities); commercial (receiving profit from investments in the purchase, sale and resale of any products, goods, services);
Environmental (investments in environmental projects or improvement of the parameters of existing industries and enterprises in terms of harmful emissions into the atmosphere and impacts on nature);
Socio-economic (investments in the qualitative improvement of healthcare, education, culture in the country, region).
So, for its implementation, any project needs resources - financial, material, labor - for the implementation of both the production process and the management process.
Stages of implementation of the investment project:
Pre investment phase
Investment intent
Identification and research of investment opportunities
Preliminary feasibility study of the project
Project data collection
Design analysis of the feasibility study
Examination and approval of the project
Investment phase
Conducting tenders and concluding contracts
Buying or renting land
Construction phase
Training
Delivery of the object
Operational phase
Project operation
Monitoring of economic projects, expansion, innovation and liquidation of the project.
At the very early stage of working with a project, it becomes necessary to collect the most complete information about the scope of the project, about the participants in this project, about the legal support for the normal course of the production process. At the stage of development of project documentation, this information is supplemented and becomes complex, which makes it possible to predict the progress of the implementation and operation of the project with a greater degree of validity.
The scale of the investment project is determined by the impact of the results of its implementation on at least one of the markets: financial, material, labor, as well as on the environmental and social situation. Projects, the implementation of which significantly affects the economic, social or environmental situation on Earth, are considered global. Projects, the implementation of which significantly affects the economic, social or environmental situation in the country and does not have a significant impact on the situation in other countries, are considered large-scale. Next come projects of regional, city scale and local projects.
State regulation of investment activity is carried out as follows:
In accordance with state investment programs;
Direct management of public investment;
Introduction of a tax system with differentiation of tax rates and benefits;
Providing financial assistance in the form of grants, subsidies, subventions, budget loans;
Regulation of land use rights and use of other natural resources;
Monitoring compliance with state norms and standards;
antitrust measures;
Examination of investment projects.
At the same time, state bodies and officials are not entitled to restrict the rights of investors in choosing investment objects.
The forms, composition and sources of investment are different and depend on the composition and scale of the project, its focus, the nature and content of the investment cycle, the nature and degree of participation in the project of the state and foreign investors, and a number of other factors. I distinguish the following forms of investment: real estate (constructions, buildings, land); cash and cash equivalents (target deposits, working capital, securities); property (machinery and equipment, equipment and tools); property rights (know-how, licenses, trademarks, patents and other copyrights).
