Investments in any project or financial instruments require regular assessment of the feasibility and effectiveness of actions. It is also necessary to understand the risks, regular monitoring of the environment.

It is also important to understand how the investments made correlate with the desired results and parameters. Investment analysis it provides everything.

It is also necessary at the end of the investment period in order to understand how successful they were, to study the mistakes made and to adjust the investment strategy for the future.

Investment analysis is a complex of various methods and techniques that help the investor decide how profitable this or that investment is. It determines everything: from the amount of profit to possible risks and alternative solutions. It remains only to use it wisely.

All methods and techniques of analysis are aimed at finding solutions for more profitable investment money. Only a small proportion of investments does not give the desired return for reasons that do not depend on the investor. The rest will be calculated by investment and marketing analysis. That is, its implementation contributes to improving the quality of investments.

It is important to understand that this is a process that occurs in dynamics and in the context of two planes:

• subject;
• temporal.

Actions and steps in the time plane imply project support throughout its entire existence, exploring and analyzing its state.

The subject plane conducts a meaningful analysis:

• economic environment;
• well-defined goals;
• marketing, production and financial plans;
• significance;
• financial indicators.

Subject of analysis– connections of all processes and phenomena during investment, their economic feasibility.

An object- the activities of an enterprise or an individual investor who participates in investment activities.

Subjects- all who will use the data received, or those who are interested in obtaining positive results when making investments.

Important! It is not necessary to carry out all the calculations yourself. To date, various investment analysis technologies have been developed: the Alt Invest software product is the most popular here. With its help, business planning is easily carried out and an express analysis of the project is carried out, calculation is carried out investment portfolio. You just need to enter the necessary data into the program, which will calculate everything for you.

The purpose of the analysis is to determine the effect that will be obtained as a result of the investment. Or in other words: it shows the difference between the benefits of the project and the costs that were incurred in the process of its implementation.

Investment and innovation analysis perform the following functions:

• structures all the information that is necessary during the implementation of investments;
• provides an opportunity to choose the most suitable option from several alternatives;
• clearly and competently forms all the problems that appear in the process of project implementation;
• leads the investor to the decision whether it is expedient or not to invest in the project.

Analysis Methods

The study of the expediency of the portfolio is carried out by two methods.

Analysis of real investments

This type of investment has its own characteristics that distinguish them from financial ones:

• profit from such investments, on average, appears at least in a year. Whereas real investments can make a profit on the day they are made;
• their volume is more significant;
• in most cases, this is the embodiment of the company's strategic goals;
• their implementation affects most objects in their environment.

There are two types of assessment here:

1. Dynamic. A basic type of valuation that applies discounting methods, thereby showing all possible outcomes more accurately.
2. Accounting. Gives conclusions on the project, not taking into account the time factor. A very simple and convenient method of analysis, but it is auxiliary.

Important! Marketing and production analysis can be part of the investment, if the latter is carried out when creating a business plan.

Analysis of financial investments

Here the most common are:

• fundamental. It implies a study of the market as a whole, industries or individual products. Fundamental analysis of the investment market explores significant changes in the economy, the impact of events taking place in the world on the economy of all countries;
• technical. Due to the analysis of past quotes and the price movement as a result of this, forecasts for the future are made. The results are obtained in the form of graphs, on the basis of which investors carry out their next steps;
• portfolio. Analysis of an investment portfolio using the main criteria - risk and potential profit (see). The investor correlates possible risks, potential profit and decides where to direct his capital. Investment analysis will show the optimal portfolio that will bring the planned profit with an acceptable level of risk.

Important! Comparative analysis of investment ratings of regions is carried out by completely different methods. Here, it is not the results of investments that are evaluated, but, on the contrary, the state before their implementation. Although the result will be the same: how expedient is the investment.

Features of some types of analysis

Separately, we can highlight the investment gap analysis. Meaning: Determining the difference between where the organization is now and what it can be and achieve.

That is, identifying a gap, which can be:

• between what position the company occupies in the market now and real demand;
• between ongoing business processes and the initial vision of management;
• between the goals and tasks that are being fulfilled and those that are really necessary;
• between what the company is showing now and what the industry leaders are showing.

Investment gap analysis has one main goal - to identify the company's market opportunities that can be turned into strategic potential.

Summing up

When conducting a comprehensive analysis of investment processes in the region, it is impossible to use the above methods of analysis. This analysis implies, first of all, the economic benefits of investments, while investments in the region should take into account the social effect.

studying investment market, its concept, main elements — state analysis can be optimally carried out using various investment analysis approaches. A well-conducted analysis opens up wide opportunities for investment.

Introduction ……………………………………………….……
Goals and areas of investment activity. Solutions for investment projects ……………………………...……
Presentation of investment projects ……………………
Stages of investment analysis ………………………..…
Methods of analysis of investment projects ……………....
	Statistical methods ………………………….……...
	Payback period of investments …………………….
	Simple rate of return method …………………
	Dynamic Methods ………………………….……….
	Net Present Value …………………...
	Net terminal value calculation method.
	Project profitability index …………….……
	Internal rate of return of investment ……….
	Modified internal rate of return...
	Discounted payback period of investment …..
Analysis of investment projects in terms of inflation and risk ...
Conclusion …………………………………………………...………………..
		Practical part
	Question 1 ………………………………………………………...…………
	Question 2 ……………………………………………………………...………
Bibliography ………………………………………...…
Annex 1 ……………………………………………………..………..… page 32
Annex 2 ………………………………………………………………… page 33

I.Introduction

The totality of long-term costs of financial, labor and material resources in order to increase savings and make a profit is called investment.

Investment activity is inherent in any enterprise to one degree or another. It is one of the most important aspects of the operation of any commercial organization. The reasons for the need for investment are updating the existing material and technical base, increasing production volumes, and developing new types of activities.

Management of investment processes related to the investment of funds in long-term material and financial assets, is the most important and complex section of financial management. Decisions made in this area are designed for long periods of time and, as a rule:

Are part of the company's development strategy in the future;

Incur significant outflows of funds;

From a certain point in time, they can become irreversible;

Based on predictive estimates of future costs and revenues.

Therefore, the importance of economic analysis for planning and implementing investment activities can hardly be overestimated. At the same time, a preliminary analysis is of particular importance, which is carried out at the stage of development of investment projects and contributes to the adoption of reasonable and justified management decisions.

In order to make a correct analysis of the effectiveness of the planned investment, many factors must be taken into account, and this is the most important thing that a financial manager must do. Degree of responsibility for acceptance investment project within one direction or another is different. Often decisions must be made in an environment where there are a number of alternative or mutually independent projects. In this case, it is necessary to make a choice of one or more projects based on some criteria. It is obvious that there may be several such criteria, and the probability that one project will be preferable to others according to all criteria is, as a rule, much less than one.

Making decisions of an investment nature, like any other type of management activity, is based on the use of various formalized and non-formalized methods. The degree of their combination is determined by various circumstances, including those of them, as far as the manager is familiar with the available apparatus applicable in a particular case. Known in domestic and foreign practice whole line formalized methods, calculations, which can serve as a basis for decision-making in the field of investment policy. There is no universal method suitable for all occasions. Perhaps management is still more of an art than a science. Nevertheless, having some estimates obtained by formalized methods, even if to a certain extent conditional, it is easier to make final decisions.

The main direction of the preliminary analysis is to determine indicators of possible economic efficiency investments, i.e. return on capital investments provided for by the project. As a rule, the time aspect of the value of money is taken into account in the calculations.

Quite often, an enterprise is faced with a situation where there are a number of alternative (mutually exclusive) investment projects. Naturally, there is a need to compare these projects and choose the most attractive of them according to some criteria.

In connection with the above, the following questions will be considered in the work:

Basic principles underlying the analysis of investment projects;

Criteria for making an investment decision;

Criteria for evaluating the economic efficiency of investment projects;

Stages of investment analysis;

Methods for evaluating investment projects.

Goals and areas of investment activity. Solutions for investment projects.

In conditions market economy There are many investment opportunities. However, any commercial organization has a limited amount of free financial resources available for investment. Therefore, the task of optimizing the investment portfolio is always relevant. In order to choose from the whole variety of possible directions for investing funds those that are the most effective in terms of investment goals, it is necessary to analyze them in detail.

The goals that are set when evaluating projects can be different, and the results obtained in the course of their implementation are not necessarily in the nature of obvious profits. There may be projects that are unprofitable in the economic sense, but bring indirect income by gaining stability in the provision of raw materials and semi-finished products, entering new markets for raw materials and marketing products, achieving some social effect, reducing costs for other projects and industries, etc. Thus, in many economically developed countries, the issue of protecting the environment and ensuring the safety of company products for users and nature is very acute. In this case, the traditional criteria for evaluating the feasibility of adopting a project, based on formalized algorithms, may give way to some informal criteria.

Any investment appraisal scheme used should be based on a classification of investment types. Different investments cause different problems, have different relative importance to the firm, and require different people to assess their importance. Decision-making on investment projects is complicated by such factors as: type of investment, cost of the investment project, the multiplicity of available projects, the way other possible investments influence the income from this investment project, the limited financial resources available for investment, the risk associated with the adoption of one or another decisions, the degree of enforcement. In general, all projects can be classified into the following categories:

1. Saving production. These are mandatory investments necessary for the firm to continue its activities.

2. Cost reduction. This category of projects includes expenses for the replacement of existing but obsolete equipment, improvement of existing technologies. The purpose of such projects is to reduce the cost of labor, materials, electricity and other factors of production.

3. Expansion of production of existing products or markets. This includes spending to increase the output of existing products or expand their market penetration. Such projects are more complex because they require an accurate assessment of future demand in the markets for the firm's products. Errors are more likely here, so even more detailed analysis is required, and the final decision is made at the highest level within the firm.

4. Expansion through the release of new products or the conquest of new markets. There are costs involved in producing new products or in distributing a firm's products to geographic areas not yet covered. Such projects involve strategic decisions that can change the fundamental nature of the business itself, they usually require large expenditures over long periods and very detailed analysis. The final decision on new products or markets is usually made by the board of directors as part of the strategic plan. Mergers and acquisitions are often analyzed as part of a cost-benefit analysis of a proposed investment and are used to execute a strategic plan.

5. Safety and/or environmental protection projects. This category includes spending to comply with government directives, employment contracts, or insurance policies. Such expenditures are often referred to as forced (mandatory) investments or profit-free production projects.

6. Others.

The degree of responsibility for the adoption of an investment project within a particular direction is different. Relatively simple calculations and few supporting documents are required for substitution decisions, especially for profitable businesses. More detailed analysis is required for cost-reducing replacement projects, for expanding existing product lines, and especially for investments in new products or regions. In addition, within each category, projects are broken down by cost: the larger the requested investment, the more detailed the analysis should be and the higher the level of officials who authorize these costs.

Often decisions must be made in an environment where there are a number of alternative or mutually independent projects. In this case, it is necessary to make a choice of one or more projects based on some criteria. When evaluating the investment options presented to management, it is important to understand the possible relationship between the individual pairs of investment proposals. Any single investment proposal may be economically dependent on another investment proposal. They say that the investment proposal economically independent (economically independent) from another investment proposal if the cash flows (or, more generally, costs and benefits) expected from the first project do not change whether or not the second project is implemented. If the decision to accept or reject the second project affects the cash flows from the first project, then the first project is said to economically dependent from the second. Obviously, if the first project is dependent on the second, then serious consideration should be given to deciding on the first project separately from the decision on the second project. The classification of dependency relationships can be deepened. If the decision to undertake the second project will increase the expected returns from the first (or decrease the costs of the first without changing the returns), then the second project is said to be complementary (complement) in relation to the first one. If the decision to undertake a second investment project reduces the expected returns from the first (or increases the costs of implementing the first without changing returns), then the second project is said to be substitute for the first, or substitute (substitute) of the first investment project. In the extreme case, when the potential profits from the first investment project will completely disappear if the second project is accepted, or it is technically impossible to implement the first project if the second is accepted, these two investment projects are called mutually exclusive (mutually exclusive).

Prerequisite Independent Mutually exclusive

Strong Weak Weak Strong

complementarity complementarity mutuality mutuality

Relationship between investments

A very significant risk factor. Investment activity is always carried out in conditions of uncertainty, the degree of which can vary significantly. Thus, at the time of the acquisition of new fixed assets, it is never possible to accurately predict the economic effect of this operation. Therefore, decisions are often made on an intuitive basis.

Analysis of the effectiveness of the planned capital investments is the process of analyzing the potential costs of financing assets and deciding whether the company should make such investments. The process of analyzing the effectiveness of the planned capital investments requires that the firm:

1. determined the costs of the project;
2. assessed the expected cash flows from the project and the riskiness of those cash flows;
3. determined the appropriate cost of capital at which the cash flows are discounted;
4. determined the present value of the expected cash flows and this project.

The following criteria for making investment decisions are used:

1. 1. criteria to assess the reality of the project:

• regulatory criteria (legal) i.e. norms of national, international law, requirements of standards, conventions, patentability, etc.;
• resource criteria (scientific and technical, technological, production criteria, volume and sources of financial resources).

1. 2. quantitative criteria to assess the feasibility of the project.

• Compliance with the project goal for the long term with the goals of developing the business environment;
• Risks and financial consequences (whether they lead to an increase in investment costs or a decrease in expected production volume, price or sales);
• The degree of sustainability of the project;
• Probability of scenario design and the state of the business environment.

1. 3. financial and economic criteria., allowing to select those projects, the implementation of which is expedient (eligibility criteria).

• project cost;
• net present value;
• profit;
• profitability;
• internal rate of return;
• payback period;
• profit sensitivity to the planning period, to changes in the business environment, to an error in data evaluation.

In general, making an investment decision requires the collaboration of many people with different backgrounds and different views on investment. However, the financial manager has the last word, who follows certain rules.

Rules for making investment decisions:

1. invest money in production or securities only makes sense if you can get net profit higher than from keeping money in a bank;
2. investing makes sense only if the return on investment exceeds the rate of inflation;
3. it makes sense to invest only in the most profitable projects, taking into account discounting.

Thus, the decision to invest in a project is made if it meets the following criteria:

• low cost of the project;
• minimizing the risk of inflationary losses;
• short payback period;
• stability or concentration of income;
• high profitability as such and after discounting;
• lack of better alternatives.

In practice, projects are selected not so much the most profitable and least risky, but those that best fit into the company's strategy.

Presentation of investment projects

A very visual tool in the analysis of investment projects is a graphical representation of the corresponding cash flow.

where - cash outflow - cash inflow

Graphical representation of a typical investment project

a) with ordinary cash flow

b) with extraordinary cash flow

From a formal point of view, any investment project depends on a number of parameters that are subject to evaluation during the analysis and are often set in the form of a discrete distribution, which makes it possible to carry out this analysis in the simulation mode. In the most general form, the investment project P is the following model:

P = (IC i , CF k , n, r),

where IC i - investment in i-th year, i = 1,2,…..,m;

CF k - cash inflow in k-th year, k = 1,2,…..,n;

n is the duration of the project;

r is the discount rate.

Investment projects analyzed in the process of capital investment budgeting have a certain logic.

Each investment project is associated with a cash flow (Cash Flow), the elements of which are either net outflows (Net Cash Outflow) or net cash inflows (Net Cash Inflow). The net outflow in the kth year is understood as the excess of the current cash costs of the project over the current cash receipts (if the ratio is reversed, there is a net inflow). Cash flow, in which inflows follow outflows, is called ordinary. If inflows and outflows alternate, the cash flow is called extraordinary.

Most often, the analysis is carried out by years, although this limitation is not mandatory. The analysis can be carried out for equal periods of any duration (month, quarter, year, etc.). At the same time, however, it is necessary to remember about the comparability of the values ​​of the cash flow elements, the interest rate and the length of the period.

It is assumed that all investments are made at the end of the year preceding the first year of the project, although in principle they can be made over a number of subsequent years.

The inflow (outflow) of cash relates to the end of the next year.

The discount factor used to evaluate projects using methods based on discounted valuations should correspond to the length of the period underlying the investment project (for example, the annual rate is taken only if the length of the period is a year).

It should be emphasized that the application of project evaluation and analysis methods implies a plurality of predictive estimates and calculations used. Plurality is defined as the possibility of applying a number of criteria, as well as the unconditional expediency of varying the main parameters. This is achieved by using simulation models in a spreadsheet environment.

Stages of investment analysis

Thus, the analysis of the effectiveness of the planned investments includes the following six stages:

1. Determining the cost (costs) of the project

2. An estimate of the expected cash flows from this project, including the value of assets at a specific time date.

3. Estimation of expected payment flows taking into account the time factor, i.e. construction of a discounted stream of payments.

4. Estimating the risk of projected cash flows using information on the probabilistic distribution of cash flows.

5. Estimation of the cost of capital required for the implementation of the project based on the present value.

6. Determination of performance criteria and comparison of the present value of the expected cash flows with the required capital investments or project costs.

If the present value of these assets exceeds their costs, then the project should be accepted. Otherwise, the project must be rejected. (Alternatively, an expected return on investment for this project can be calculated, and if this return exceeds the required design ratio, then the project is accepted.)

Methods for analyzing investment projects

The set of methods used to assess the effectiveness of investments can be divided into two groups: dynamic (taking into account the time factor) and static (accounting).

Discounted payback period

Classification of investment analysis methods

The most important of the static methods is the "payback period", which shows the liquidity of a given project. The disadvantage of static methods is the lack of consideration of the time factor.

Dynamic methods that allow taking into account the time factor reflect the most modern approaches to assessing the effectiveness of investments and prevail in the practice of large and medium-sized enterprises in developed countries. In the economic practice of Russia, the use of these methods is also due to the high level of inflation.

Dynamic methods are often called discount methods because they are based on the determination of the present value (i.e. discounting) cash flows associated with the implementation of the investment project.

In doing so, the following assumptions are made:

Cash flows at the end (beginning) of each project implementation period are known;

An estimate is determined, expressed as an interest rate (discount rate), according to which funds can be invested in this project. As such an assessment, the following are usually used: the average or marginal cost of capital for an enterprise; interest rates on long-term loans; the required rate of return on invested funds, etc. Significant factors influencing the value of the assessment are inflation and risk.

Static Methods

Payback period ( paybackperiod - PP )

This method is one of the simplest and widely used in world practice, does not imply a temporal ordering of cash receipts.

It consists in calculating the number of years required to fully recover the initial costs, i.e. the point at which the cash flow of income equals the sum of the cash flows of costs is determined. Projects with the shortest payback periods are selected. The algorithm for calculating the payback period (PP) depends on the uniformity of the distribution of projected income from the investment. If the income is evenly distributed over the years, then the payback period is calculated by dividing the one-time costs by the amount of annual income due to them. When a fractional number is received, it is rounded up to the nearest whole number. If profits are unevenly distributed, then the payback period is calculated by directly counting the number of years during which the investment will be repaid with cumulative income. The general formula for calculating the PP indicator is as follows:

РР = n , at which CF t > IC, where: CF t - net cash flow of income

IC is the sum of cash flow costs

The indicator of the payback period of investments is very simple in calculations, however, it has a number of disadvantages that must be taken into account in the analysis.

First, it ignores cash receipts after the project's payback period has expired.

Second, because this method is based on undiscounted estimates, it does not distinguish between projects with the same amount of cumulative returns but different yearly distributions. It does not take into account the possibility of reinvestment of income and the time value of money. Therefore, projects with equal payback periods, but different time structure of income are recognized as equivalent.

At the same time, this method allows you to judge the liquidity and riskiness of the project, because long-term payback means long-term immobilization of funds (reduced liquidity of the project) and increased riskiness of the project. There are a number of situations in which it may be appropriate to apply the payback method. In particular, this is a situation where the company's management is more concerned with solving the problem of liquidity, rather than the profitability of the project - the main thing is that the investment pays off as soon as possible. The method is also good in a situation where investments are associated with a high degree risk, therefore, the shorter the payback period, the less risky the project is. The PP method is successfully used for quick rejection of projects, as well as in conditions of high inflation, political instability or a shortage of liquid funds: these circumstances orient the enterprise to receive maximum income in the shortest possible time.

Method simple norms arrived ( Accounting Rate of Return -ARR )

When using this method, the average net accounting profit over the life of the project is compared with the average investment (costs of fixed and working capital) in the project.

The method is easy to understand and includes simple calculations, so it can be used to quickly reject projects. However, a significant drawback is that it ignores the non-monetary (hidden) nature of certain types of costs (such as depreciation) and the associated tax savings; income from the liquidation of old assets being replaced by new ones; opportunities for reinvestment of income received and the time value of money. The method does not make it possible to judge the preference for one of the projects that have the same simple accounting rate of return, but different average investments.

ARR = , where P b - net accounting profit from the project

IC - investment

Dynamic Methods

net present value ( Netpresentvalue - NPV )

This investment evaluation criterion belongs to the group of discounted cash flow methods or DCF methods. It is based on a comparison of the value of investment costs (IC) and the total amount of time-adjusted future cash flows generated by it over the forecast period. With a given discount rate (coefficient r, set by the analyst (investor) independently based on the annual percentage of return that he wants or can have on the capital he invests), it is possible to determine the current value of all cash outflows and inflows during the economic life of the project, and also compare them with each other. The result of such a comparison will be a positive or negative value (net cash inflow or net cash outflow), which indicates whether or not the project satisfies the accepted discount rate.

Let I 0 - the amount of initial costs, i.e. amount of investment at the beginning

PV - present value of cash flow throughout the economic

project life.

Then the net present value is:

NPV = PV - IO

The total accumulated value of discounted income (PV) is calculated by the formula:

where: r - discount rate;

n - number of project implementation periods;

CF t - net cash flow in period t.

If the net present value of the cash flow calculated in this way is positive (NPV > 0), this means that during its economic life the project will reimburse the initial costs /o, provide a profit according to a given standard r, as well as some reserve equal to NPV. Negative value NPV shows that the given rate of return is not provided and the project is unprofitable. At NPV== 0 the project only pays for the costs incurred, but does not generate income. However, a project with NPV=0 still has an additional argument in its favor - in the case of the project implementation, production volumes will increase, i.e. the company will grow in scale (which is often seen as a positive trend).

General NPV Rule: if NPV > 0, then the project is accepted, otherwise it should be rejected.

When forecasting income by years, it is necessary to take into account, if possible, all types of income, both industrial and non-productive, that may be associated with this project. So, if at the end of the project implementation period it is planned to receive funds in the form of the salvage value of equipment or the release of part of working capital, they should be taken into account as income of the corresponding periods.

If the project involves not a one-time investment, but a consistent investment of financial resources over m years, then the formula for calculating NPV is modified as follows:

where i is the projected average inflation rate.

Taking into account the above, the formula for calculating NPV for the general case will take the form:

Manual calculation using the above formulas is quite laborious, therefore, for the convenience of using this and other methods based on discounted estimates, special financial tables have been developed in which the values ​​​​of compound interest, discount factors, and discounted value are tabulated monetary unit etc. depending on the time interval and the value of the discount rate.

It should be noted that the NPV indicator reflects the forecast estimate of the change economic potential enterprises in case of acceptance of the considered project. This indicator is additive in terms of time, i.e. NPV of various projects can be summed up. This is a very important property that distinguishes this criterion from all the others and allows it to be used as the main one when analyzing the optimality of an investment portfolio.

The net present value chart is one of the most useful tools for summarizing the return characteristics of an investment. Various discount rates are plotted on the horizontal axis; on the vertical is the net present value of the investment. The net present value of an investment is shown for all discount rates from zero to some reasonably high value.

It is required to analyze an investment project with the following characteristics (million rubles): - 150, 30, 70, 70, 45. Consider two cases:

a) the price of capital 12%;

b) it is expected that the price of capital will change over the years as follows: 12%, 13%, 14%, 14%.

In case a) we use the formula:

11.0 million rubles, i.e. project is acceptable.

b) Here NPV is found by direct calculation:

NPV= -150 + ?? +??? + ?????? + ?????? = - 1.2 million rubles,

1,12 1,12?1,13 1,12?1,13?1,14 1,12?1,13?1,14 2

those. the project is unprofitable.

In practice, after determining the indicators of investment efficiency, they carry out an analysis of their sensitivity (sensitivity analysis) to changes in possible conditions. In the general case, such an analysis is reduced to the study of changes in the obtained value depending on various values ​​of the parameters of the recurrence relations. The payback period of the project and vice versa - the value of NPV is directly affected by the discount rate r. The structure of the cash flow also has a significant impact. The greater the cash inflows in the first years of the economic life of the project, the greater the final NPV value and, accordingly, the sooner the cost recovery will occur.

Using the NPV method, one can determine not only the commercial effectiveness of the project, but also calculate a number of additional indicators. Such an extensive scope and relative simplicity of calculations provided the NPV method with widespread use, and at present it is one of the standard methods for calculating the effectiveness of investments recommended for use by the UN and the World Bank.

However, the correct use of the NPV method is possible only if a number of conditions are met:

The volume of cash flows within the investment project must be estimated for the entire planning period and tied to certain time intervals. Cash flows within the framework of an investment project should be considered in isolation from the rest of the enterprise's production activities, i.e. characterize only payments and receipts directly related to the implementation of this project. The principle of discounting used in calculating net present income, from an economic point of view, implies the possibility of unlimited attraction and investment of financial resources at a discount rate. Using the method to compare the effectiveness of several projects involves the use of a single discount rate for all projects and a single time interval (defined, as a rule, as the longest implementation period available).

When calculating NPV, as a rule, a constant discount rate is used, however, depending on the circumstances (for example, the level of interest rates is expected to change), the discount rate may differ from year to year. If different discount rates are applied during calculations, then a project that is acceptable at a constant discount rate may become unacceptable.

Being an absolute indicator, NPV has the most important property - the property of addivism, i.e. The NPV of different projects can be summarized. Other important properties of this criterion include more realistic assumptions about the rate of reinvestment of incoming funds. (The NPV method implicitly assumes that the proceeds from the project are reinvested at a given discount rate r.)

The use of the NPV criterion is theoretically justified, and in general it is considered the most correct measure of investment efficiency. However, it has its drawbacks. For example, NPV is not an absolutely correct criterion when: a) choosing between a project with a large initial cost and a project with a lower initial cost at the same net present value; b) choosing between a project with a higher net present value and a long payback period and a project with a lower net present value and a short payback period. Those. the NPV method does not allow to judge the threshold of profitability and the margin of financial strength of the project. The method does not objectify the impact of changes in the cost of real estate and raw materials on the net present value of the project. Its use is complicated by the difficulty of predicting the discount rate (weighted average cost of capital) and/or bank interest rates.

Thus, the use of absolute indicators in the analysis of projects with different initial conditions (initial investment, economic life, etc.) can lead to difficulties in making managerial decisions.

Therefore, along with the absolute indicator of investment efficiency NPV, relative ones are also used - the profitability index and the internal rate of return.

Net Terminal Value Calculation Method (NetTerminalvalue– NTV)

The NPV criterion is based on bringing the cash flow to the beginning of the project, i.e. it is based on the discounting operation. Obviously, you can use the reverse operation - increment. In this case, the elements of the cash flow will be brought to the end of the project.

Accretion for calculating NTV

Discounting for

calculation of NPV

Obviously, the formula for calculating the criterion has the form:

The conditions for accepting a project based on the NTV criterion are the same as in the case of NPV. If: NTV > 0, then the project should be accepted;

NTV< 0, то проект следует отвергнуть;

NTV = 0, then the project is neither profitable nor unprofitable.

The NPV and NTV criteria are mutually inverse, they duplicate each other, i.e. project selection according to one of them gives exactly the same result as when using another criterion.

Project Profitability Index (profitabilityIndex - PI )

The profitability index shows how many units of the current value of cash flow account for a unit of estimated initial costs. This method is essentially a consequence of the net present value method. To calculate the IP indicator, the formula is used:

If the value of the criterion PI > 1, then the present value of the project's cash flow exceeds the initial investment, thereby ensuring the presence of a positive NPV value; in this case, the rate of return exceeds the specified one, i.e. the project should be accepted;

At PI< 1, проект не обеспечивает заданного уровня рентабельности, и его следует отвергнуть;

If PI = 1, then the investment does not generate income - the project is neither profitable nor unprofitable.

Thus, the PI criterion characterizes the efficiency of investments; it is this criterion that is most preferable when it is necessary to streamline independent projects to create an optimal portfolio in the case of a limited amount of investment from above.

Unlike the net present effect, the profitability index is a relative indicator. Due to this, it is very 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 NPV value.

The disadvantage of the profitability index is that this indicator is highly sensitive to the scale of the project. It does not always provide an unambiguous measure of investment performance, and the project with the highest PI may not match the project with the highest NPV. In particular, the use of the profitability index does not allow one to correctly evaluate mutually exclusive projects. In this connection, it is often used as an addition to the NPV criterion.

Internal rate of return of investment ( Internalrateofreturn - IRR )

The internal rate of return is the most widely used measure of investment performance. The internal rate of return is understood as the value of the discount rate r, at which the net present value of the investment project is zero:

IRR = r, where NPV = f(r) = 0.

Thus, IRR is found from the equation:

The meaning of calculating this ratio when analyzing the effectiveness of planned investments is as follows: IRR shows the maximum allowable relative level of expenses that can be associated with a given project. For example, if the project is financed entirely by a loan commercial bank, then the IRR value shows the upper limit of the acceptable level of the bank interest rate, the excess of which makes the project unprofitable.

With NPV = 0, the present value of the project (PV) is equal in absolute value to the initial investment I 0 , therefore, they pay off. In general, the higher the IRR, the greater the return on investment. The IRR value is compared with a given discount rate r. Moreover, if IRR>r, then the project provides a positive NPV and a return equal to IRR-r. If IRR

To estimate the internal rate of return, you can use the net present value chart, marking one negative and one positive point and connecting them with a line. For a project whose outflow (investment) is replaced by inflows exceeding this outflow in total, the function y = f(r) is decreasing, i.e. as r increases, the graph of the function tends to the abscissa axis and intersects it at some point, which is the IRR. (A function can have multiple points of intersection with the x-axis). Axis intersection X(NPV=0) will give an approximate (rather than exact) estimate of the internal rate of return.

The ordinate axis (r=0) crosses the NPV chart at a point equal to the sum of all elements of the undiscounted cash flow, including the value of the initial investment.

An important point is that the IRR criterion does not have the additivity property.

In practice, any enterprise finances its activities, including investment, from various sources. As a payment for the use of financial resources advanced to the activity of the enterprise, it pays interest, dividends, remuneration, etc., i.e. incurs some reasonable costs to maintain its economic potential. An indicator that characterizes the relative level of these costs can be called the cost of advanced capital (CC). This indicator reflects the minimum return on the capital invested in its activities, its profitability, which has developed at the enterprise, and is calculated using the arithmetic weighted average formula.

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 (or the price of the source of funds for this project, if it has a target source). 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;

IRR< CC, то проект следует отвергнуть;

IRR = CC, then the project is neither profitable nor unprofitable.

Regardless of what the IRR is compared to, it is obvious that a project is accepted if its IRR is greater than a certain threshold value; therefore, with other equal conditions, as a rule, a larger IRR value is considered preferable.

Modern spreadsheet processors allow you to quickly and efficiently determine this indicator by using special functions. However, if the analyst does not have a specialized financial calculator, practical use this method is complicated. In this case, the method of successive iterations is applied using tabulated values ​​of discount factors. To do this, using tables, two values ​​of the discount factor r 1

where r 1 is the value of the tabulated discount factor at which f(r 1)>0 (f(r 1)<0);

r 2 - the value of the tabulated discount factor at which f(r 2)<О (f(r 2)>0).

The calculation accuracy is inversely proportional to the length of the interval (r 1 ,r 2), and the best approximation using tabulated values ​​is achieved when the length of the interval is minimal (equal to 1%), i.e. r 1 and r 2 - the nearest to each other values ​​of the discount coefficient that satisfy the conditions (in case of changing the sign of the function from "+" to "-"):

r 1 - the value of the tabulated discount factor, minimizing the positive value of the NPV indicator, i.e. f(r 1)=min r (f(r)>0);

r 2 - the value of the tabulated discount factor, maximizing the negative value of the NPV indicator, i.e. f(r 2)=max r (f(r)<0}.

By mutual replacement of the coefficients r 1 and r 2, similar conditions are written for the situation when the function changes sign from "-" to "+".

Let's take two arbitrary values ​​of the discount factor: r = 10%, r = 20%. The corresponding calculations using tabulated values ​​are shown in Table 1.

The IRR value is calculated using the formula as follows:

IRR = 10% + ????? (20% -10%) = 16.6%.

You can refine the resulting value. Let's assume that by several iterations we have determined the nearest integer values ​​of the discount factor at which NPV changes sign: at r =16% NPV= +0.05; at r = 17% NPV = -0.14. Then the corrected IRR value will be equal to:

IRR = 16% + ????? (17% -16%) = 16.26%.

Having a number of positive properties:

1. The IRR indicator, calculated as a percentage, is more convenient for use in the analysis than the NPV indicator, because. relative values ​​are easier to interpret;
2. Carries information about the approximate value of the safety margin for the project;

At the same time, the IRR criterion has significant drawbacks:

1. Unrealistic assumption about the reinvestment rate. Unlike NPV, the internal rate of return criterion implicitly assumes the reinvestment of income received at the IRR rate, which is hardly feasible in real practice.
2. Possibility of multiple IRR values. In general, if one or more independent projects with ordinary cash flow are analyzed, when initial costs are followed by positive cash inflows, applying the IRR criterion always leads to the same results as NPV. But in the case of alternating cash inflows with outflows, there may be several IRR values ​​for one project.
3. It is highly sensitive to the structure of the payment flow and does not always allow one to unambiguously evaluate mutually exclusive projects.

When analyzing the conditions for applying the IRR method, two types of investment projects are distinguished in the literature: isolated investments, or pure investments, and mixed investments.

Net investments are understood as investments that do not require intermediate capital investments, and the funds received from the implementation of the project are directed to the depreciation of invested capital and to income. A normal sign of net investment is the nature of the dynamics of the balance of cash flows: up to a certain point in time, only negative balances (i.e., excess of expenses over income), and then only positive balances (net income), and the final balance of cash flows should be non-negative (t .e. the project must be nominally profitable).

A formal sign of mixed investments is the alternation of positive and negative balances of cash flows during the implementation of the project.
An unambiguous determination of the IRR indicator becomes impossible, and the use of the IRR method for the analysis of mixed investments becomes inappropriate. The effectiveness of mixed investments is calculated using the NPV method or one of the special methods for calculating efficiency. Therefore, speaking further about the IRR method, we will mean the analysis of only net investments.

To determine the effectiveness of an investment project by calculating the internal rate of return, a comparison of the obtained value with the base interest rate is used, which characterizes the effectiveness of the alternative use of financial resources. The project is considered effective if the following inequality is satisfied:

IRR > i, where i is some base interest rate.

This criterion is also focused primarily on taking into account the possibilities of alternative investment of financial resources, since it does not show the absolute effectiveness of the project as such (a non-negative IRR rate would be enough for this), but relative - in comparison with operations in the financial market.

The IRR indicator can also be used to compare the effectiveness of various investment projects with each other. However, here a simple comparison of the values ​​of the internal rate of return of the compared projects may not be enough. In particular, the results obtained when comparing the effectiveness of investment projects using NPV and IRR methods can lead to fundamentally different results. This is due to the following circumstances: in order to achieve absolute comparability of projects, it is necessary to use the so-called. additional investments to eliminate differences in the volume invested capital and timing of projects. When using the NPV method, it is assumed that additional investments are also discounted at the base interest rate i, while using the IRR method assumes that additional investments also have a return equal to the internal rate of return of the analyzed project and which is obviously higher than the base discount rate .

In practice, a comparative analysis of investment projects is carried out in most cases by simply comparing the values ​​of internal rates of return. Despite a certain theoretical incorrectness, this approach makes it possible to eliminate the influence of the subjective choice of the base interest rate on the results of the analysis. Indeed, the main purpose of using additional investment tools is to try to reconcile the results comparative analysis using the NPV- and IRR-methods, more precisely, link the second to the first, since with this approach, the net present value of the project has priority. In addition, the use of the additional investment tool is correct only in the case of a comparative analysis of alternative or mutually exclusive projects, which further narrows the scope of its application and makes it completely unsuitable for analyzing an investment program.

In general, compared with the NPV method, the use of the internal rate of return is associated with great limitations.

First, for the IRR method, all the restrictions of the NPV method are valid, i.e. the need for an isolated consideration of the investment project, the need to forecast cash flows for the entire period of the project, etc.

Secondly, the scope of the IRR method is limited only to the area of ​​net investment.

Modified internal rate of return ( modifiedInternalrateofreturn– MIRR )

The main disadvantage inherent in the IRR in relation to the evaluation of projects with extraordinary cash flows can be overcome with the help of an analogue of IRR, which is acceptable for the analysis of any projects - MIRR. This method is a more advanced modification of the internal rate of return method, expanding the possibilities of the latter.

MIRR is the discount rate that balances the inflows and outflows of funds from a project. All cash flows of income are reduced to the future (final) value at the weighted average price of capital, added up, the amount is reduced to the present value at the rate of internal profitability; the present value of the income is subtracted from the present value of the cash costs and the net present value of the project is calculated, which is compared with the present value of the costs.

The method gives a more correct assessment of the reinvestment rate and removes the problem of the multiplicity of the rate of return.

The general calculation formula is:

where: COF i – cash outflow in i-th period(in absolute value);

CIF i - cash inflow in the i-th period;

r is the cost of the source of financing for this project;

n is the duration of the project.

Because future (terminal) value of today's receipts:

where r is the rate at which cash inflows from the project are reinvested as they are received (or the market return available to the investor).

Cost of cash outflows:

Let project A have the following cash flow (million rubles): -10, -15, 7, 11, 8, 12.

10 -15 7 11 8 12

Criteria calculation schemeMIRR.

3.? MIRR = 13.8%

Since the MIRR is greater than the cost of capital, the project should be accepted.

The MIRR criterion is fully consistent with the NPV criterion and therefore can be used to evaluate independent projects. As for alternative projects, conflicts between the NPV and MIRR criteria may arise if the projects differ significantly in scale, i.e. the values ​​of the elements in one stream are much larger in absolute value than in the other, or the projects have different durations. In this case, it is recommended to apply the NPV criterion, not forgetting at the same time to take into account the riskiness of the cash flow.

Discounted payback period of investment ( Discountedpaybackperiod- DPP )

Some experts recommend taking into account the time aspect when calculating the payback period (PP). In this case, cash flows discounted by WACC (weighted average cost of capital) are taken into account. Thus, the moment when the discounted cash flows of income will equal the discounted cash flows of costs is determined.

The formula for calculating DPP is:

DPP = min n, at which

Obviously, in the case of discounting, the payback period increases.

The positive side of the DPP method is that it, like the PP criterion, allows you to judge the liquidity and riskiness of the project. In addition, the DPP criterion takes into account the possibility of reinvestment of income and the time value of money. Disadvantage - ignores cash receipts after the expiration of the payback period of the project.

Analysis of investment projects in terms of inflation and risk

When evaluating the effectiveness of investment projects, it is necessary to take into account, if possible, the impact of inflation. This can be done by adjusting for the inflation index (i) of either future receipts or a discount rate. The most correct, but also more time-consuming in the calculations, is a method that provides for the adjustment of all factors affecting the cash flows of the compared projects. Key factors include revenue and variable costs. The adjustment can be made using different indices, since the price indices for the products of a commercial organization and the raw materials it consumes may differ significantly from the inflation index. With the help of such recalculations, new cash flows are calculated, which are compared with each other using the NPV criterion.

A simpler one is to adjust the discount rate for the inflation index.

The risk factor also plays a significant role in the analysis of investment projects. Because the main characteristics of the investment project are the elements of the cash flow and the discount rate, the risk is taken into account by adjusting one of these parameters. There are several approaches:

1) Simulation model of risk accounting.

Represents cash flow adjustment followed by NPV calculation for all options (sensitivity analysis). The analysis method in this case is as follows:

For each project, three of its possible development options are built: pessimistic, most probable and optimistic.

For each of the options, the corresponding NPV is calculated.

For each project, the range of NPV variation is calculated using the formula: R(NPV) = NPV 0 - NPV p

A project with a large scope of variation is considered more risky.

2) Methodology for constructing a risk-free equivalent cash flow.

This technique is based on ideas developed within the framework of utility theory and game theory. In particular, J. Von Neumann and O. Morgenstern showed that decision-making, incl. and in the field of investment, using criteria based only on monetary assessments, is certainly not optimal - it is more preferable to use special criteria that take into account the expected utility of a particular event. Considering element by element the cash flow of a risky project, the investor in relation to it tries to estimate which guaranteed, i.e. risk-free, he will need the amount to be indifferent to the choice between this amount and the expected amount, i.e. risk, the value of the k-th element of the flow.

Graphically, the attitude towards risk is expressed using indifference (indifference) curves.

Expected

AB - investor indifference curve with increasing risk aversion

AC - investor indifference curve with decreasing risk aversion

AD - investor indifference curve with constant (unchanged) risk aversion

AE - the investor is indifferent (neutral) to risk

Types of indifference curve charts

1. Discount Rate Risk Adjustment Methodology

Assumes the introduction of an amendment to the discount rate:

The initial cost of capital CC (or WACC) intended for investment is established.

A risk premium associated with a given project is determined (eg by expert examination) for each of the projects (r a , b).

NPV is calculated with discount rate r: r = CC + r a , b .

A project with a large NPV is considered preferable.

Project B k = f(b)

Market average

for risk Project A

b-factor

k rf - risk-free discount rate

Graph of the relationship between discount rate and risk

Of the considered risk accounting methods, the RADR method ( risk- Adjusted Discount rate) is more popular. Because it is more convenient to work with relative indicators and it is easier to introduce an adjustment to the discount rate than to calculate risk-free equivalents.

Conclusion

The use of any, even the most sophisticated, methods will not ensure complete predictability of the final result, the main goal is to compare the investment projects proposed for consideration on the basis of a unified approach using, if possible, objective and verifiable indicators and compiling a relatively more efficient and relatively less risky investment portfolio.

To do this, it is advisable to apply, first of all, dynamic methods based mainly on discounting the cash flows generated during the implementation of the project. The use of discounting allows you to reflect the fundamental principle "tomorrow's money is cheaper than today's" and thereby take into account the possibility of alternative investments at a discount rate. The general scheme of all dynamic methods for evaluating efficiency is basically the same and is based on forecasting positive and negative cash flows (roughly speaking, expenses and incomes associated with the implementation of the project) for the planned period and comparing the resulting balance of cash flows, discounted at the appropriate rate, with investment costs . And measures to assess the risk of investment and the use of methods for accounting for uncertainty in financial calculations, which make it possible to reduce the impact of incorrect forecasts on the final result and thereby increase the likelihood of a correct decision, can significantly increase the validity and correctness of the analysis results.

An analysis of the development and distribution of dynamic methods for determining the effectiveness of investments proves the necessity and possibility of their application for evaluating investment projects. In highly developed industrial countries, a little more than 30 years ago, the attitude towards these methods of evaluating efficiency was approximately the same as in our time in Russia: in 1964 in the United States, only 16% of surveyed enterprises used dynamic calculation methods in investment analysis. By the mid-1980s, this share had risen to 86%. In the countries of Central Europe (Germany, Austria, Switzerland) in 1989, more than 88% of surveyed enterprises used dynamic calculation methods to assess the effectiveness of investments. At the same time, it should be taken into account that in all cases industrial enterprises were studied, which often make investments due to technical necessity. The more important is the dynamic analysis of investment projects in the activity financial institution profit-oriented and with numerous alternative investment opportunities.

In a real situation, the problem of choosing projects can be quite difficult. It is no coincidence that numerous studies and generalizations of decision-making practices in the field of investment policy in the West have shown that the vast majority of companies, firstly, calculate several criteria and, secondly, use the obtained quantitative estimates not as a guide to action, but as information for reflection. . Therefore, it should be emphasized that the methods of quantitative assessments should not be an end in itself, just as their complexity cannot be a guarantor of the unconditional correctness of decisions made with their help.

II. Practical part

Question 1

The company must choose between two machines that perform the same operations but have a different lifespan. The costs of purchasing and operating the machines are as follows:

	10,000 + replacement
		8,000 + replacement

Costs are given in real terms.

1. Suppose you are the financial manager of a company. If you purchased this or that machine, then leased it to the production manager for the life of the machine, what rent can you charge? Assume that the discount rate is 6% and taxes are not taken into account.
2. Which car should the company buy?
3. The normal rent discussed in question 1 is based on the calculation and interpretation of the flat annual cost. Suppose you actually bought one of the machines and leased it to the production manager. What annual rent can you charge for the future if the inflation rate is 8% per year? (Note: rents represent real cash flows. Rents should be adjusted for inflation forecasts).

1. Let's calculate the NPV value for each of the projects:

It is necessary that NPV be greater than 0, therefore it is necessary that:

for project A:

That. the discounted value of the rent for machine A must be more than 66,730.12 rubles. for 3 years or 22243.37 rubles. in year.

For project B:

6716,95 + 6336,75 = 77720,84

That. the discounted value of the rent for machine B must be more than 77,720.84 rubles. for 4 years or 19430.21 rubles. in year.

Calculation of NPV for projects can be performed in the Excel PPP using the financial function NPZ (), which allows you to determine the modern cost of the flow; and from which the value of the initial costs should then be subtracted. (See Appendix 1)

1. It is obvious that the company should buy the machine, the cost of acquisition and operation of which will be the lowest.

These projects are not comparable in time. Eliminate the temporary incompatibility of projects by repeating the implementation of the shorter one. The least common multiple is 12. Accordingly, we get projects A ’ and B ’:

Project A'

0 1 2 3 4 5 6 7 8 9 10 11 12

40000 -10000 -10000 -10000

40000 -10000 -10000 -10000

40000 -10000 -10000 -10000

40000 -10000 -10000 -10000

Project B ’

0 1 2 3 4 5 6 7 8 9 10 11 12

50000 -8000 -8000 -8000 -8000

50000 -8000 -8000 -8000 -8000

Let's calculate the reduced costs for each project:

a) Machine A:

b) Machine B:

Total PV: ,

where i is the duration of this (initial) project

N is the least common multiple,

n is the number of repetitions of the original project

a) Machine A:

b) Machine B:

Thus, the company should buy machine B, because the cost of it is less than the cost of machine A.

1. To account for inflation, it is necessary to adjust the discount rate for the inflation index:

1+p = (1+r) * (1+Ipr) ? 1.06 * 1.08 = 1.1448

Because it is more expedient to buy car B, then: ,

Let CF 1 = CF 2 = CF 3 =CF 4 , i.e. the amount of rent per year is set for the entire lease term and is not subject to change.

CF*(0.873515 + 0.75725 + 0.666517 + 0.58212) > 77720.84

CF * 2.879402 > 77720.84

CF > 26992.01

Thus, the annual rent, taking into account inflation, should be set at an amount exceeding 26992b01 rubles.

Question 2

Time (year)
cash flows

The reinvestment rate is 10% and the risk-free rate is 6% per annum.

6000*(1+0,10) 4-1 + 8000*(1+0,10) 4-2 + 15000*(1+0,10) 4-3 + 5000 = 7986 + 9680 +

16500 + 5000 = 39166

1. = 20000
2. = 0.183 or MIRR = 18.3%

This problem can be solved in the Excel PPP using the financial function MIRR(), which calculates the modified internal rate of return. (See Appendix 2)

Bibliography

1. Balabanov I.T. Fundamentals of financial management: Tutorial. - M.: Finance and statistics, 1998
2. Birman G., Schmidt S. Economic analysis of investment projects / per. from English. ed. L.P. White. - M .: Banks and exchanges, UNITI, 1997
3. Brigham Eugene F. Encyclopedia of financial management / per. from English. 5th ed. - M .: RAGS, "ECONOMY", 1998
4. Kovalev V.V. Introduction to financial management. - M.: Finance and statistics, 2000
5. Lukasevich I.Ya. "Analysis of financial transactions (methods, models, computational techniques)": Textbook for universities. - M .: "Finance", Publishing Association "UNITI", 1998
6. Financial management: theory and practice.: Textbook / ed. Corresponding Member AMIR E.S. Stoyanova. - M .: Perspective, 1996
7. Financial management: Textbook for universities / ed. G.B. Pole. - M .: "Finance", Publishing Association "UNITI", 1997
8. Sharp W., Alexander G., Bailey J. Investments / transl. from English. - M.: INFRA-M, 1998
9. Lectures

Topic 3. Theoretical foundations of investment analysis

Investment analysis- This the financial analysis investment project, it is a set of techniques and methods for evaluating the effectiveness of the project for the entire period of its life in conjunction with the activities of the enterprise - the object of investment.

Investment analysis includes:

Ø studying the development and implementation of investment policy;

Ø analysis and evaluation of the effectiveness of specific investment projects using discounted and accounting methods of evaluation;

Ø analysis and evaluation of the portfolio (budget) of investments.

Investment analysis is an independent area of ​​economic analysis, the implementation of which depends on the need to justify management decisions on specific options for capital and financial investments.

Purpose of investment analysis – Objective assessment the feasibility of short- and long-term investments, as well as the development of basic guidelines for the investment policy of the enterprise.

Tasks investment analysis:

1) a comprehensive assessment of the need and availability of the required investment conditions;

2) reasonable choice of funding sources and their prices;

3) identification of factors (objective and subjective, internal and external) that affect the deviation of actual investment results from previously planned ones;

4) optimal investment decisions that strengthen competitive advantages firms and consistent with its tactical and strategic goals;

5) risk and return parameters acceptable for the investor;

6) post-investment monitoring and development of recommendations for improving the qualitative and quantitative results of investment.

The basis of the analytical substantiation of the process of making managerial decisions of an investment nature is the assessment and comparison of the volume of proposed investments and future cash receipts. The essence of analysis and evaluation is to compare the amount of required investment with projected returns. Since the compared indicators refer to different points in time, the problem of their comparability becomes key.

The most important points in the process of evaluating an investment project:

ü Forecasting the volume of production and sales, taking into account the possible demand for products;

ü assessment of cash inflow by years;

ü assessment of the availability of required funding sources;

ü assessment of the acceptable value of the cost of capital;

ü Forecasting and estimating the costs of production and sales of products.

Features of investment projects analyzed in the capital budgeting process:

1. Each investment project has a cash flow associated with it, the elements of which represent either net cash inflows or net cash outflows. Under net cash outflow in the analyzed period is understood as the excess of the current cash costs of the project over the current cash receipts. In the reverse relation, there is net cash inflow. In investment analysis, it is precisely the focus on cash flows, and not on profit, that is taken. With the help of cash flows, the real movement of values ​​\u200b\u200bis reflected, costs are estimated and financial results. Any investment project can be represented as a cash flow consisting of two parts: the first is an investment, that is, a net outflow; the second is the subsequent return flow, that is, a series of income (net inflows) distributed over time that allows you to recoup the original investment.

2. Investment analysis is carried out, as a rule, by years. However, the analysis can be carried out for equal base periods of any duration (month, quarter, year, etc.). It is only necessary to link the amount of cash flow, interest rates and the length of the time period

3. All investments are considered to be made at the end of the year (postnumerando) preceding the first year of cash inflows generated by the project, although investments can be made over a number of years. Similarly, it is assumed that the inflow (outflow) of funds takes place at the end of the next period.

4. The main criteria for evaluating projects involve taking into account the time factor. This is done with the help of well-known algorithms used in financial mathematics to streamline the elements of a time-long cash flow (compounding - accumulation and discounting). Competent investment analysis allows you to evaluate:

Ø the cost of the investment project;

Ø future cash flows by periods of the project life cycle and their current (present) value;

Ø the structure and volume of funding sources;

Ø degree of influence of inflation on the main parameters of the project;

Ø economic feasibility of the project implementation based on the calculation baseline efficiency (NPV, PI, IRR, DPP);

Ø possible term of the project implementation;

Ø level of project discount rate of the project;

Ø the level of its riskiness.

Management decisions regarding the feasibility of investments are strategic decisions and require detailed analytical justification.

Factors complicating investment decision making:

§ any investment requires the concentration of a large amount of financial resources, while any company experiences limited financial resources for investment;

§ investments do not, as a rule, give momentary returns, as a result of which there is an immobilization effect equity, when the funds are deadened in assets that will begin to make a profit only after a while. Therefore, the enterprise must have accumulated a certain financial "fat" that allows it to carry out investment costs;

§ Most often, investments are made with borrowed capital, and therefore it is necessary to substantiate the structure of sources, assess the cost of their maintenance and formulate arguments to attract potential investors;

§ the plurality of available (alternative or mutually exclusive) options for investing capital, which requires a comparison of projects and their selection according to some criteria;

§ there is a risk associated with the adoption of a particular investment decision. Investment activity is always carried out in conditions of uncertainty, the degree of which can vary significantly.

We are returning to the issues of development strategy, investment policy, evaluation of the effectiveness of investment projects. An integral part of business management is an end-to-end analytical tool that the company's management always uses when it comes to making a decision. This special systemic function, based on accounting, is used for various purposes, the main of which are related to real investments. Investment analysis as a comprehensive tool for the investment process is considered in this article.

The concept and classification of investment analysis

I like to refer to the fundamental concepts of management events and actions. Why? Probably because without scientific knowledge it is quite difficult to understand the subtle "matters" of investment practice. And one of the postulates of this knowledge is the understanding of the subject of the studied categories, the concepts of which make it possible to build axiomatic foundations for the development of methodology. We are in the conceptual field of the investment sphere, and to the adjective "investment" we can add:

• strategy;
• process;
• activity;
• policy;
• project;
• risk;
• analysis.

Concepts are the essence of the phenomenon, and if the semantics of phrases are different, it means that they have excellent content behind them, which has a special meaning in practice. Pay attention to whichever concept from the presented list we take, the analysis is relevant to each of them. Let's analyze the phrase "investment analysis" (IA) by elements. From the position scientific method analysis (from analysis (Greek) - dismemberment, decomposition) is the process of mentally dividing the object under study into parts. The analyst asks: "And what happens in essence, what are the structure, composition, properties and relationships of the parts of the object?" The essence never lies on the surface, which means that the object of study must be dissected or divided into parts.

Model of an analytic-synthetic procedure. Source: Textbook for MBA students. Author - Goncharova S.G.

As you know, the correctness of the analysis is determined by the results of the synthesis of the object, which allows to some extent clarify the essence of the object, compare it with other similar objects according to the criteria of analysis and synthesis. Next, consider the adjective "investment". It defines the specifics of the analysis associated with decisions at higher and lower levels of their adoption from strategy to specific tasks of the project type. The expressed position defines the foundations of the concept of investment analysis.

In applied terms, we understand IA as a complex analytical activity aimed at obtaining a justification for making an effective investment decision. Systems and methods of investment analysis reproduce the methodology of financial and economic analysis, of which they are a part. The strategic type of IA, evaluation of investment programs, projects and individual operations form two interrelated contours of analytical and evaluation procedures.

In connection with the presence of several circuits associated with investments, the division of analysis into types is of particular importance. The following is a classification of AI based on a number of features. The main features are the level and moment of the procedure, regardless of its type.

Classification of types of IA in a commercial organization

Subjects and objects of IA

The content and structure of investment analysis is largely determined by its subjects, subject and objects. Under the subjects of IA, we will understand the persons who directly make the analysis, and the circle of participants in whose interests it is performed. At the same time, we will divide the performers into persons participating in strategic IA and persons performing investment analysis related to project selection and real investments. The analysis that precedes the development of an investment strategy involves:

• Director of Development;
• financial director;
• Commercial Director;
• Chief Engineer;
• executives representing investment centers in the company.

In IAs performed at the project level, the named managers are assigned more of a supervising function, and the direct execution of the analysis is carried out by:

• financial and economic service;
• accounting;
• marketing service;
• chief technologist service;
• department of capital construction;
• other services related to the project.

The structure of the services participating in the IA of projects can be universal and be formed for the campaign of selection and selection of projects in the portfolio, or it can be created for each project in a unique format. IA is also performed by specialized divisions of external stakeholders: banks, consulting and insurance companies. The subjects that make decisions based on the results of the performed IA include:

• investors;
• head of the company;
• strategic planning session group;
• credit committees of banks;
• suppliers and buyers (in some cases);
• representatives of other interested organizations and authorities.

The subject of IA is determined by the cause-and-effect relationships of financial processes occurring as a result of the company's investment activities, the parameters of the accompanying socio-economic efficiency. The results of the conducted research make it possible to correctly assess the directions and sizes of investments, substantiate business plans, and find reserves for improving processes. IA objects are the results of actions of the corresponding level.

1. Model of the company's strategic investment position.
2. Plan of strategic investment measures.
3. Structure and composition of the investment portfolio of the enterprise.
4. Project programs.
5. Local projects.
6. Individual investment operations, for example, in the financial sector.

The structure of IA system options in a company depends on the industry, the scale of the enterprise, and the level of development of regular management. As a rule, it is built from the top down from the strategy and from the current moment to the future, in which a retrospective analysis is carried out upon the implementation of project tasks. An example of the composition and relationships of IAs is shown below.

A variant of the composition and interrelations of the IA of a mid-level company

Methods of strategic IA

The development of an investment strategy is part of the overall strategic process. Before decisions in this area can be made, a strategic investment position model must be established. It comprehensively characterizes the possibilities for the development of an enterprise in priority areas for the development of investment activities. Systems and methods of investment analysis for strategy development are divided into three blocks. The first block is related to the study of the macro- and microenvironment of the company in order to obtain a complete picture of the investment environment in which it operates:

• SWOT analysis;
• PEST analysis;
• SWN analysis.

The second block of IA has a dual nature and uses the foundations of financial strategic analysis. It forms the prerequisites for decisions on the overall financial development strategy and on the local investment strategy. The content of this group is determined by the following models and methods:

• assessment of business performance using the SOFIA method;
• firm's sustainable growth model;
• company valuation;
• matrix of financial strategies of the company.

The third block of strategic IA provides a solution to the problem of finalizing ideas, investment directions, and identified uncertainties. This block uses three types of analysis: portfolio, scenario and expert. Portfolio analysis refers to the stage of marketing analysis, at which business units are compared and recommendations are made on the priorities for allocating resources for their development.

When conducting research, there are almost always several areas of strategic uncertainty that can carry serious threats to future implementation. The scenario method of IA allows to avoid them. The simplest technique is based on the consideration of three scenarios as a result of investment models of the pessimistic, optimistic and most probable scenarios.

The types of the first block are well known from strategic management, so I will limit myself to the characteristics of the IA methods of the financial block. The SOFIA model is not only a set of financial strategic management methods, but also an integral financial management system, in which special attention is paid to investment strategy, its evaluation and implementation. The main components of this system are shown below.

Composition of SOFIA system components

The sustainable growth model of a firm assesses the proportionate growth rates of sales revenue, profits, assets, equity, and company debt. The method allows preparing decisions on strategic balancing of finances, including in the investment sphere. Valuation of the company allows you to evaluate the effectiveness of business management in past periods. With the help of matrices of financial strategic models (authorship of BCG), an understanding arises whether the company has investment opportunities or not.

Simplified diagram of the matrix of financial strategic models

design-level IA

The analysis of investment projects puts the main task of obtaining conclusions that allow you to select projects for implementation, ensure the achievement of the intended results in the course of monitoring implementation and adjust the investment process based on the results of their closure. Below is an algorithm for choosing a project based on IA. The analysis of the effectiveness of investment projects occupies the central part of the financial and economic analysis, which, in turn, is the main IA in the system of comprehensive assessment of the plan of strategic investment measures.

Algorithm for accepting an investment project for execution based on the results of the IA

The local tasks of the project IA include the following.

1. Assessment of compliance with the required conditions for investing in the project in accordance with investment policy and strategies.
2. Substantiation of project financing sources and their cost.
3. Establishment of factors influencing the results of the project, which in fact differ from the planned values.
4. Finding an acceptable ratio of risk and return on the project for the investor.
5. Formation of recommendations for improving the quality and effectiveness of investments in further practice based on retrospective generalizations.

General model of financial and economic analysis with the transition to project IA

Above is a figurative model of the transition from the three strategies to the methods of IA projects based on performance parameters. It should be emphasized that the methods of analysis of investment projects are based on the assessment of cash flows as real events of a practical plane. This IA differs, for example, from the analysis economic activity enterprises. AHD bases its research on the income-expenditure concept of performance evaluation based on the accrual principle, rather than cash flow.

Among the applied methods of IA projects, one should name the following types analyzes and evaluation:

• the effectiveness of the project as a whole;
• effectiveness of participation in the project;
• project efficiency taking into account inflation (in forecast and deflated prices);
• sources of investment resources;
• project efficiency with the use of simulation models;
• financial stability;
• risk aspects of project implementation;
• the impact of project implementation on the performance indicators of the entire company.

In this article, we examined investment analysis in a commercial organization from the perspective of two levels: strategic and project. Naturally, both of these aspects are closely interrelated and constitute a logical sequence from the development of an investment strategy and policy to the solution of specific project tasks. "Overboard" of our attention was IA financial investment, and this is not a problem, since articles on this topic are planned. In any case, in my opinion, the introduction to the subject area of ​​investment analysis took place, and we got the opportunity to further analyze specific applied tools in detail.

Under investments or capital investments in the most general sense, it is understood as a temporary refusal of an economic entity from the consumption of resources (capital) at its disposal and the use of these resources to increase its welfare in the future. The simplest example of investment is spending money on the acquisition of property characterized by significantly less liquidity - equipment, real estate, financial or other non-current assets.

The main features of investment activity that determine approaches to its analysis are:

• Irreversibility associated with the temporary loss of the use value of capital (for example, liquidity).
• Expectation of an increase in the initial level of well-being.
• Uncertainty associated with attributing results to a relatively long-term perspective.

It is customary to distinguish between two types of investments: real investment And financial (portfolio) investments. In the further presentation of the material, we will mainly focus on the first of them.

The basic concepts of investment analysis theory include:

It should be noted that in the case of real investment, the condition for achieving the intended goals, as a rule, is the use (operation) of the relevant non-current assets for the production of certain products and their subsequent sale. This also includes, for example, the use of the organizational and technical structures of a newly formed business to make a profit in the course of the statutory activities of an enterprise created with the attraction of investments.

Investment project

If the volume of investments turns out to be significant for a given economic entity in terms of its impact on its current and prospective financial condition, the adoption of appropriate management decisions should be preceded by the planning or design stage, that is, the stage of pre-investment research, culminating in the development of an investment project.

investment project called a plan or program of measures related to the implementation of capital investments and their subsequent reimbursement and profit.

The task of developing an investment project is to prepare the information necessary for an informed decision-making regarding the implementation of investments. The main method for achieving this goal is mathematical modeling of the consequences of making appropriate decisions.

Budget Approach and Cash Flows. For modeling purposes, an investment project is considered in a time base, and the analyzed period (research horizon) is divided into several equal intervals - planning intervals. For each planning interval, budgets are compiled - estimates of receipts and payments, reflecting the results of all operations performed in this time period.

The balance of such a budget - the difference between receipts and payments - is the cash flow of the investment project for a given planning interval. If all the components of the investment project are expressed in monetary terms, we will get a series of cash flow values ​​that describe the process of implementing the investment project.

In the enlarged structure, the cash flow of an investment project consists of the following main elements: Investment costs. Revenue from the sale of products. Production costs. Taxes.

At the initial stage of the project (investment period), cash flows, as a rule, turn out to be negative. This reflects the outflow of resources that occurs in connection with the creation of conditions for subsequent activities (for example, the acquisition of non-current assets and the formation of net working capital).

After the completion of the investment and the beginning of the operating period associated with the start of the operation of non-current assets, the amount of cash flow, as a rule, becomes positive. Additional revenue from the sale of products, as well as additional production costs incurred during the implementation of the project, can be both positive and negative values. In the first case, this may be due, for example, to the closure of unprofitable production, when the decline in revenue is covered by cost savings. In the second case, a reduction in costs is modeled as a result of their savings during, for example, equipment upgrades.

Technically, the task of investment analysis is to determine what will be the amount of cash flows on a cumulative basis at the end of the established research horizon. In particular, it is fundamentally important whether it will be positive.

Profit and depreciation. In investment analysis, the concepts of profit and cash flow, as well as the related concept of depreciation, play an important role.

The economic meaning of the concept of "profit" is that it is a capital gain. In other words, this is an increase in the welfare of an economic entity that manages a certain amount of resources. Profit is the main goal of economic activity.

As a rule, profit is calculated as the difference between the income received from the sale of products and services for a given time interval and the costs associated with the production of these products (rendering services).

It should be specially noted that in the theory of investment analysis the concept of "profit" (however, like many other economic concepts) does not coincide with its accounting and fiscal interpretation.

In investment activity, the fact of making a profit is preceded by the reimbursement of the initial investment, which corresponds to the concept of "amortization" (in English, the word "amortization" means: repayment of the main part of the debt). In the case of investing in non-current assets, this function is performed by depreciation.

Thus, the justification for fulfilling the main requirements for a project in the field of real investment is based on the calculation of the amounts of depreciation and profit within the established research horizon. This amount, in the most general case, will be the total cash flow of the operating period.

Cost of capital and interest rates. The concept of "cost of capital" is closely related to the economic concept - profit.

The value of capital in the economy lies in its ability to create added value, that is, to make a profit. This value in the corresponding market - the capital market - determines its value.

Thus, the cost of capital is the rate of return that determines the value of disposing of capital over a certain period of time (usually a year).

In the simplest case, when one of the parties (seller, lender, lender) transfers the right to dispose of capital to another party (buyer, borrower), the cost of capital is expressed in the form of an interest rate.

The interest rate is determined based on market conditions (that is, the availability of alternative options for using capital) and the degree of risk of this option.

At the same time, one of the components of the market value of capital is inflation. When performing calculations at constant prices, the inflation component can be excluded from the interest rate. To do this, one should use one of the modifications of the well-known Fisher's formulas:

Where,
r - real interest rate;
n - nominal interest rate;
i - inflation rate.

All rates and inflation rates in this formula are given as decimals and must refer to the same time period.

In general, the interest rate corresponds to the share of the principal amount of the debt (principal), which must be paid at the end of the billing period. Bets of this kind are called simple.

Interest rates that differ in the duration of the settlement period can be compared with each other through the calculation of effective rates or compound interest rates. The effective rate is calculated according to the following formula:

Where,

S - simple rate;
N is the number of interest accrual periods within the considered interval.

The most important component of the cost of capital is the degree of risk. It is precisely because of the various risks associated with various forms, directions and terms of use of capital that different assessments of its value can be observed in the capital market at any given time.

Discounting

The concept of "discounting" is one of the key in the theory of investment analysis. The literal translation of this word from English (“discounting”) means: cost reduction, markdown.

discounting is the operation of calculating the present value (the English term "present value" can also be translated as "present value", "present value", etc.) of amounts of money relating to future periods of time

The opposite of discounting, the calculation of the future value of an initial amount of money, is called accumulation or compounding and is easily illustrated by an example of an increase in the amount of debt over time at a given interest rate:

F = P * (1+r)N

Where,
F - future value;
P - modern value (initial value) of the amount of money;
r - interest rate (in decimal terms);
N is the number of interest periods.

The transformation of the above formula in the case of solving the inverse problem looks like this:

P = F / (1+r) N

Discounting methods are used if it is necessary to compare the amounts of cash receipts and payments spaced over time. In particular, the key criterion for the effectiveness of investments - net present value (NPV) - is the sum of all cash flows (receipts and payments) arising during the period under review, given (recalculated) at one point in time, which, as a rule, is chosen as the moment the investment was started.

As follows from what has been said above, the interest rate used in the formula for calculating the present value is no different from the usual rate, which in turn reflects the cost of capital. In the case of using discount methods, this rate, however, is usually called the discount rate (possible options: "comparison rate", "barrier rate", "discount rate", "reduction factor", etc.).

A qualitative assessment of the effectiveness of an investment project largely depends on the choice of the discount rate. There are a large number of different methods to justify the use of one or another value of this rate. In the most general case, you can specify the following options for choosing a discount rate:

• The minimum rate of return of an alternative use of capital (for example, the rate of return on reliable marketable securities or the rate of deposit in a reliable bank).
• The current level of return on capital (for example, the company's weighted average cost of capital). The cost of capital that can be used to implement this investment project (for example, the rate on investment loans).
• The expected level of return on invested capital, taking into account all the risks of the project.

The rates listed above differ mainly in the degree of risk, which is one of the components of the cost of capital. Depending on the type of discount rate chosen, the results of calculations related to the assessment of the effectiveness of investments should also be interpreted.

Tasks of evaluation of the investment project

The main goal of an investment project evaluation is to substantiate its commercial (entrepreneurial) viability. The latter involves the fulfillment of two fundamental requirements:

• Full recovery (payback) of invested funds.
• Receiving profit, the amount of which justifies the rejection of any other way of using resources (capital) and compensates for the risk arising from the uncertainty of the final result.

It is necessary to distinguish between two components of the commercial viability of an investment project, its necessary and sufficient conditions, respectively:

• Economic efficiency of investments.
• Financial viability of the project.

An economic assessment or an assessment of the effectiveness of capital investment is aimed at determining the potential of the project under consideration to provide the required or expected level of profitability. When performing investment analysis, the task of evaluating the effectiveness of capital investments is the main one that determines the fate of the project as a whole.

The financial assessment is aimed at choosing a scheme for financing the project and thus characterizes the possibilities for realizing the economic potential of the project. The assessment should follow an economic approach and consider only those benefits and losses that can be measured in monetary terms.

Investment project evaluation stages

The investment project development cycle can be represented as a sequence of three stages (stages):

1. Formulation of the project idea
2. Assessment of the investment attractiveness of the project
3. Choosing a project financing scheme

As you move through the stages, the idea of ​​the project is refined and enriched with new information. Thus, each stage is a kind of intermediate finish: the results obtained at it should serve as confirmation of the feasibility of the project and, thus, are a "pass" to the next stage of development.

On first stage there is an assessment of the possibility of implementing the project in terms of marketing, production, legal and other aspects. The initial information for this is information about the macroeconomic environment of the project, the intended market for the product, technologies, tax conditions, etc. The result of the first stage is a structured description of the project idea and a time schedule for its implementation.

Second stage in most cases is decisive. Here, the evaluation of the effectiveness of investments and the determination of the possible cost of the capital involved. The initial information for the second stage is the schedule of capital investments, sales volumes, current (production) costs, the need for working capital, discount rate. The results of this stage are most often presented in the form of tables and investment performance indicators: net present value (NPV), payback period, internal rate of return (IRR).

Third stage is associated with the choice of the optimal scheme for financing the project and the assessment of the effectiveness of investments from the position of the owner (holder) of the project. For this, information is used on interest rates and loan repayment schedules, as well as the level of dividend payments, etc. The results of the financial assessment of the project should be: financial plan for the implementation of the project, forecast forms financial reporting and indicators of financial solvency.

Any method of investment analysis involves considering the project as a conditionally independent economic object. Therefore, at the first two stages of development, an investment project should be considered separately from the rest of the activities of the enterprise that implements it.

The isolated (local) nature of the consideration of projects excludes the possibility of a correct choice of schemes for their financing. This is due to the fact that the decision to attract one or another source for financing capital investments is made, as a rule, at the level of the enterprise as a whole or its financially independent subdivision. In this case, first of all, the current financial condition of this enterprise is taken into account, which is almost impossible to reflect in a local project.

Thus, on large enterprises the task of choosing a financing scheme for an investment project (at least for projects classified as "large") necessarily goes to the highest level of management. At the level of middle management, the task remains to select the most effective, that is, the most potentially profitable projects from the existing list.