Investment appraisal and its structural features
The evaluation of investments is a process,which demands from the performer certain skills and a competent approach. The fact is that the investor is interested in getting the maximum profit, while having a minimal risk of loss of investments. Many of the entrepreneurs invest money gradually, while assessing the degree of reliability and the level of profitability. If you make a rash step, you can just lose all the money.
The estimation of investments is considered one of the waysfinancial management. Its essence lies in the fact that experts conduct an analysis of the profitability of this project and its degree of risk, as well as the payback period of the investment. The analysis takes into account economic, political and social factors, as well as verification of the reliability of the completed business plan. This procedure allows you to accurately determine the main indicators and determine the level of their effectiveness.
As a rule, the assessment of investments is necessary to determine the most favorable conditions for lending or investing capital, as well as to search for an investor who will help implement a particular project.
The result of this procedure iscompilation of a detailed report that contains comprehensive answers on the effectiveness of the funds invested, as well as the level of profitability and profitability of the project as a whole. Based on these data, the customer can decide whether it makes sense at all to invest something in this project, what are the possible options for its improvement and processing.
In general, the investments are subdivided into long-termand short-term. This classification takes into account the terms of sponsorship. Evaluation of long-term investments takes a long time, because an entrepreneur must conduct a thorough analysis and diagnosis at the initial stages of the origin and development of the project. Such a procedure will help to calculate possible prospects for the next few years. If this is not done, then, most likely, the investor simply refuses to provide sponsorship, because he will not know the development plan of the organization.
There is such a thing as an estimateefficiency of investments. This is a system of certain principles that are designed to determine the effectiveness of choice for the implementation of certain investment objectives. There are several principles for carrying out this procedure:
- The valuation, which is conducted based on the indicators of net cash flow.
- Reduction to the present value of the amount of cash flow and the amount of capital invested.
- The choice of the discount rate, which is carried out during the execution of 2 points.
The point is that if the investment is valued competently, this is the key to confidence that the decision to invest is made correctly, and the prospects are assessed with the utmost precision.
There are several methods for conducting investment valuation, which are used by specialists:
- Calculation of the period for which this investment can pay off.
- Calculation of the rate of return that is expected to be received for all capital
- Determining the cost-effectiveness that went into production.
- The difference between income and costs.
- Comparative analysis of profits from investing money capital.
The accuracy of the investment estimate directly depends on the degree of complexity of the project.
The method associated with discounting takes into accountthe effectiveness of the investment in a specific period of time, which must be determined in advance. Typically, this method is applicable for long-term investments for a period of more than five years.