Indicators of commercial efficiency of investments. Commercial efficiency of an investment project

Purpose of the lecture: to learn calculate cash flows and indicators of commercial efficiency of an investment project.

If the project is recognized as socially effective, then they move on to assessing its commercial value. efficiency. In Methodological recommendations for assessment efficiency investment project provides a list of commercial indicators efficiency [ 6 ] :

Conditions of commercial efficiency investment project is a positive value of the integral NPV, as well as the values ​​of IDI and IDI exceeding one.

In order to correctly evaluate commercial efficiency investment project, it is necessary to correctly determine cash flows, the values ​​of which are used in the calculations. Any cash flow F represents the difference between the inflow P and outflow O of funds:

The procedure for calculating cash inflows and outflows varies depending on the nature of the cash flow. Outflow of funds from investment activities– these are all investments related to the implementation of the project (investments in fixed assets, in the initial working capital, in intangible assets). Inflow of funds from investment activities is formed in the event of the sale of assets and is determined by the income from this sale. Operational activities are activities related to the production and sale of products. The outflow of funds from operating activities includes the cost of production less depreciation and the cost of paying taxes and other mandatory payments. The influx of funds from operating activities is revenue from sales of products [7].

Example. Calculate cash flows from investment and operating activities to assess commercial efficiency project, if investments amount to 18,000 thousand rubles. are carried out in the first year of implementation of the investment project, and production begins in the second year. The project life cycle is 8 years. In the last year of the life cycle, assets are sold. Income from the sale of assets is 50 thousand rubles. The cost of production is 5 thousand rubles/piece. , unit price – 7 thousand rubles. PC. Production and sales volume – 12,000 pcs./year. The annual amount of taxes and other obligatory payments is 30 thousand rubles. Annual amount depreciation charges

– 80 thousand rubles.

Solution. cash flow Let's consider investment activities from investment activities. In our task, the outflow of funds from investment activities– 50 thousand rubles. (income from the sale of assets). We know that investments are made in the first year project life cycle investment activities, and the sale of assets - in the last (eighth) year. This means that the cash flow from cash flow Let's consider investment activities in the first year it will be -18,000 thousand rubles. , and in the last year - 50 thousand rubles. From the second to the seventh year inclusive

will be equal to zero, because during these years no operations related to investment activities are carried out. Cash flow cash flow from operating activities should be calculated from the second to eighth years of the life cycle. In the first year this

is not calculated because there is no production yet this year. First of all, you should calculate the cost of annual production volume and annual revenue.

The cost of annual production volume is calculated as the product of the cost per unit of production and the annual production volume:

Annual revenue is calculated as the product of unit price and annual sales volume: cash flow To calculate the annual amount

from operating activities, the cost price should be deducted from the revenue (while excluding depreciation from its composition) and the annual amount of taxes and other mandatory payments:

Let's arrange the calculations in the form of a table (table 5.1):
Table 5.1. Calculation of cash flows to assess the commercial effectiveness of the project Indicators 1 year 2 year 3 year 4 year 5 year 6 year
7 year 18000 0 0 0 0 0 0 0
8 year 0 0 0 0 0 0 0 50
Investments, thousand rubles 0 12000 12000 12000 12000 12000 12000 12000
Income from the sale of assets, thousand rubles. 0 12000 12000 12000 12000 12000 12000 12000
Production volume, pcs./year 0 5 5 5 5 5 5 5
Sales volume, pcs./year 0 7 7 7 7 7 7 7
Cost per unit of production, thousand rubles. 0 60000 60000 60000 60000 60000 60000 60000
Product unit price, thousand rubles. 0 84000 84000 84000 84000 84000 84000 84000
Cost of production volume, thousand rubles. (= item 3 x item 5) 0 80 80 80 80 80 80 80
Annual revenue, thousand rubles. (= item 4 x item 6) 0 30 30 30 30 30 30 30
Depreciation, thousand rubles/year investment activities Tax and other obligatory payments, thousand rubles/year -18000 0 0 0 0 0 0 50
Cash flow from 0 23890 23890 23890 23890 23890 23890 23890

, thousand roubles. (=item 2-item 1) (income from the sale of assets). We know that investments are made in the first year Cash flow from operating activities, thousand rubles. (=p.8-p.7-p.9-p.10) cash flow The problem we solved is a fairly simple case: the production volume is exactly equal to the sales volume and does not change during

, other parameters do not change (cost and unit price, amount of tax payments). In more complex cases cash flows from operating activities will be calculated separately for each year of the life cycle of the investment project.

Example. Having calculated efficiency, proceed to the calculation of commercial efficiency indicators.

– 80 thousand rubles.

Using the data from the previous example, estimate the commercial cash flows, which were already calculated in the previous example. Net income and net present value must be calculated at each calculation step. Let's make the calculation in tabular form (Table 5.2):

Table 5.2.
Table 5.1. Calculation of cash flows to assess the commercial effectiveness of the project Indicators 1 year 2 year 3 year 4 year 5 year 6 year
Depreciation, thousand rubles/year investment activities Calculation of BH and NPV -18000 0 0 0 0 0 0 50
, thousand roubles. 0 23890 23890 23890 23890 23890 23890 23890
Cash flow from operating activities, thousand rubles. -18000 23890 23890 23890 23890 23890 23890 23940
Net income, thousand rubles. (item 1+item 2) 0,870 0,756 0,658 0,572 0,497 0,432 0,376 0,327
Discount factor at E=15% (formula 3) -15652 18064 15708 13659 11878 10328 8981 7826
NPV, thousand rubles. (item 3 x item 4) -15652 2412 18120 31779 43657 53985 62966 70792

NPV on an accrual basis, thousand rubles.

The integral NPV amounted to 70,792 thousand rubles.

Commercial efficiency can be calculated both for the project as a whole and for its individual participants. In this case, the effect at each step of the calculation is a cash flow consisting of inflows and outflows of funds.

The commercial effectiveness of an investment project is assessed based on such indicators as the flow of real money, the balance of real money and the balance of accumulated real money.

Real cash flow is the difference between the inflow (+) and outflow of cash (-) from operating and investing activities for each period of a given project.

The real cash balance is the difference between the cash inflows and outflows from all three activities.

The balance of accumulated real money is the balance of real money, on an accrual basis.

Flow of real money - this indicator is used in the future to calculate such criteria for the effectiveness of an investment project as: net present value, payback period of the project, return on investment index, internal rate of return and others.

A project is considered commercially effective and financially feasible if the balance of real money at each calculation step is greater than zero. If this condition is not met, it is necessary to redesign the cash flows from the implementation of the investment project.

Calculation of indicators of commercial efficiency of individual entrepreneurs is based on the following principles:

Current or forecast prices for products, services and material resources provided for by the project are used;

Cash flows are calculated in the same currencies in which the project provides for the acquisition of resources and payment for products;

If the project involves both the production and consumption of some products (for example, the production and consumption of components or equipment), the calculation takes into account only the costs of its production, but not the costs of its acquisition;

The calculation takes into account taxes, fees, deductions, etc., provided for by law, in particular, VAT reimbursement for the resources used, tax benefits established by law, etc.;

If the project provides for the full or partial binding of funds (deposit, purchase of securities, etc.), the investment of the corresponding amounts is taken into account (in the form of outflows) in cash flows from investing activities, and receipts (in the form of inflows) - in cash flows from operating activities ;

If the project involves the simultaneous implementation of several types of operating activities, the cost of each of them is taken into account in the calculation.


The following tables are recommended as output forms for calculating the commercial efficiency of a project:

Profit and loss statement;

Cash flows with calculation of performance indicators.

To build a profit and loss statement, you must provide information about tax payments for each type of tax.

The assessment of the commercial effectiveness of the project as a whole is made on the basis of performance indicators calculated in accordance with clause 2.8.

2.8. IP performance indicators

The following are recommended as the main indicators used to calculate the efficiency of IP:

Net income;

Net present value;

Internal rate of return;

The need for additional financing (other names - PF, project cost, risk capital);

Indices of profitability of costs and investments;

Payback period;

A group of indicators characterizing the financial condition of the enterprise participating in the project.

Conditions for financial feasibility and performance indicators are calculated on the basis of cash flow fi_m, the specific components of which depend on the type of performance being assessed and are described in Section 4.8.

At different stages of calculations, in accordance with their goals and the specifics of the PF, financial indicators and conditions for the financial feasibility of the individual entrepreneur are assessed in current or forecast prices. Other indicators are determined in current or deflated prices.

Net income (other names - BH, Net Value, NV) is the accumulated effect (cash flow balance) for the billing period:

BH = Sum Phi, (2.3)

where the summation applies to all steps of the billing period.

The most important indicator of project efficiency is net present value (other names - NPV, integral effect, Net Present Value, NPV) - the accumulated discounted effect for the billing period. NPV is calculated using the formula:

NPV = Sum Phi alpha (E). (2.4)

NPV and NPV characterize the excess of total cash receipts over total costs for a given project, respectively, without taking into account and taking into account the inequality of effects (as well as costs, results) relating to different points in time.

The difference between BH and NPV is often called the project discount.

To recognize a project as effective from the investor’s point of view, it is necessary that the NPV of the project be positive; when comparing alternative projects, preference should be given to the project with a large NPV value (if the condition of its positivity is met).

Internal rate of return (other names - IRR, internal discount rate, internal rate of return, Internal Rate of Return, IRR). In the most common case of individual entrepreneurs starting with (investment) costs and having a positive BH, the internal rate of return is called a positive number E_v if:

At the discount rate E = E_v, the net present value of the project turns to 0.

This is the only number.

In a more general case, the internal rate of return is such a positive number E_v that at the discount rate E = E_v the net present value of the project turns to 0, for all large values ​​of E it is negative, for all smaller values ​​of E it is positive. If at least one of these conditions is not met, the GNI is considered not to exist.

To assess the effectiveness of an individual entrepreneur, the value of IRR must be compared with the discount rate E. Investment projects with IRR > E have a positive NPV and are therefore effective. Projects with GNI< Е, имеют отрицательный ЧДД и потому неэффективны.

VND can also be used:

For the economic assessment of design solutions, if acceptable values ​​of IRR (depending on the area of ​​application) are known for projects of this type;

To assess the degree of stability of the IP based on the difference between GNI - E (see Section 10);

To establish the discount rate E by project participants based on data on the internal rate of return of alternative areas for investing their own funds.

To assess the effectiveness of an individual entrepreneur for the first k steps of the billing period, it is recommended to use the following indicators:

Current net income (accumulated balance):

BH(k) = Sum Phi;

Current net present value (accumulated discounted balance):

NPV(k)= Sum Phi alpha (E);

The current internal rate of return (current IRR), defined as such a number of IRR(k), that at the discount rate E = IRR(k) the NPV(k) value becomes 0, for all large values ​​of E it is negative, for all smaller values ​​of E - positive. For individual projects and values ​​of k, the current IRR may not exist.

The payback period (“simple” payback period) is the duration of the period from the initial moment to the payback period. The starting point is indicated in the design task (usually the beginning of step zero or the beginning of operational activities). The payback moment is the earliest point in time in the calculation period, after which the current net income of BH(k) becomes and subsequently remains non-negative.

When assessing efficiency, the payback period, as a rule, acts only as a limitation.

The payback period taking into account discounting is the duration of the period from the initial moment to the “payback moment taking into account discounting”. The payback moment, taking into account discounting, is the earliest point in time in the calculation period, after which the current net present value NPV (k) becomes and subsequently remains non-negative.

The need for additional financing (PF) is the maximum value of the absolute value of the negative accumulated balance from investment and operating activities (see below). The PF value shows the minimum amount of external financing for a project required to ensure its financial feasibility. Therefore, PF is also called risk capital. It should be borne in mind that the actual amount of required financing does not have to coincide with the PF, and, as a rule, exceeds it due to the need to service the debt (see example in Appendix 10).

The need for additional financing taking into account the discount (DFT) is the maximum value of the absolute value of the negative accumulated discounted balance from investment and operating activities (see below). The DPF value shows the minimum discounted amount of external financing for the project necessary to ensure its financial feasibility.

Profitability indices characterize the (relative) “return of a project” on the funds invested in it. They can be calculated for both discounted and undiscounted cash flows. When assessing effectiveness, the following are often used:

Cost profitability index is the ratio of the amount of cash inflows (accumulated receipts) to the amount of cash outflows (accumulated payments).

Discounted cost profitability index is the ratio of the sum of discounted cash inflows to the sum of discounted cash outflows.

Investment return index (IR) is the ratio of the sum of the elements of cash flow from operating activities to the absolute value of the sum of the elements of cash flow from investment activities. It is equal to the ratio of the black hole to the accumulated volume of investments increased by one;

Discounted investment return index (DII) is the ratio of the sum of discounted elements of cash flow from operating activities to the absolute value of the discounted sum of elements of cash flow from investment activities. IDI is equal to the ratio of NPV increased by one to the accumulated discounted volume of investments.

When calculating the ID and IDD, either all capital investments for the calculation period can be taken into account, including investments in replacing retiring fixed assets, or only the initial capital investments made before the enterprise is put into operation (the corresponding indicators will, of course, have different values).

The cost and investment return indices exceed 1 if and only if the BH for this flow is positive.

The profitability indices of discounted costs and investments exceed 1 if and only if the NPV for this flow is positive.

No. 25 Efficiency of participation in an investment project

ü participation of enterprises in the project - efficiency for enterprises - participants of the IP

ü investing in shares enterprises - efficiency for shareholders of joint-stock companies - participants of individual entrepreneurs

ü higher level structures in relation to enterprises - participants of the IP (national economic, industry, regional, etc. . )

ü budget efficiency IP - the effectiveness of state participation in the project in terms of expenses and revenues of budgets of all levels

ü EFFECTIVENESS OF PARTICIPATION IN THE PROJECT - checking the financial feasibility of the project and the interest of ALL its participants in it (taking into account their financial capabilities)

24. Indicators of commercial efficiency of investments

Calculation of indicators of commercial efficiency of investment projects is formed on the following principles:

1) current or forecast prices for material resources, products and services provided for by the project are used;

2) cash flows are calculated in the same currencies in which the project provides for the acquisition of resources and payment for products;

3) wages are included in operating costs in the amounts determined by the project (including deductions);

4) if the project involves both the consumption and production of some products (for example, the production and consumption of components or equipment), the calculation takes into account only the costs of its production, but not the costs of its acquisition;

5) the calculation takes into account deductions, taxes, fees, etc., provided for by law, in particular, VAT reimbursement for consumed resources, tax benefits established by law, etc.;

6) if the project provides for the full or partial binding of funds (purchase of securities, deposit, etc.), the investment of the corresponding amounts (in the form of outflow) is taken into account in cash flows from investment activities, and receipts (in the form of inflows) are taken into account in cash flows from operational activities;

7) if the project involves the simultaneous implementation of several types of operating activities, the costs for each of them are taken into account.

The following tables are recommended as output forms for calculating the commercial efficiency of a project:

1) profit and loss statement;

2) cash flows with the calculation of performance indicators.

To build a profit and loss statement, you must provide information about tax payments for each type of tax.

As an (optional) addition, a forecast of the balance of liabilities and assets by stages of calculation can also be provided (balance sheet table). In the process of calculating performance indicators, two main aggregates are used: the amount of receipts and the amount of payments.

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Assessing the commercial effectiveness of an investment project is assessed to determine the potential attractiveness of the project for possible participants and to find sources of financing.

The commercial effectiveness of the project as a whole is assessed on the basis of performance indicators. which were discussed in topic 3 of this manual.

Indicators are determined both by the technical, technological and organizational solutions of the project, and by the scheme of its financing.

  • - net income (NI);
  • - net present value (NPV) or integral effect (another indicator name quite widely used abroad is net present value (or current) value, net present value (NPV));
  • - profitability index (or profitability index, profitability (PI));
  • - discounted investment return index (NPI)
  • - payback period (term for repayment of one-time costs of RV);
  • - internal rate of return (or internal rate of profit, profitability, intemal rate of retum (IRR))
  • - PV (current cost of IP)
  • - FV (future value of IP).

A detailed description of the calculations is given in the materials of topic 3.

A number of entities take part in the implementation and implementation of the investment project: shareholders (firms, companies), banks, budgets of different levels. The income received by society (gross domestic product) from the implementation of effective projects is then divided between them.

The presence of several participants in the investment process predetermines the discrepancy between their interests and different attitudes towards the priority of various project options. The income and expenses of these entities determine the various types of efficiency of the investment project from the perspective of each participant. It should be borne in mind that the positions of project participants are embodied in the initial information and the formation of specific cash flows for calculating performance indicators. Therefore, they may not have the same assessment results, and therefore, decisions about their participation in the project.

Overall project effectiveness is assessed to present the project and, in this regard, determine the attractiveness of the project for potential investors.

Social efficiency characterizes the socio-economic consequences of the project for society as a whole, i.e. it takes into account not only the direct results and costs of the project, but also costs and results “external” to the project in related sectors of the economy, economic, social and other non-economic effects.

Social efficiency is assessed only for socially significant investment projects that affect the interests of not one country, but several.

For projects that do not require an examination of government bodies, the development of social performance indicators is not required.

Commercial viability of a project characterizes the economic consequences of its implementation for the initiator, based on a very conditional assumption that he makes all the costs necessary for the implementation of the project and uses all its results. Commercial effectiveness is sometimes interpreted as the effectiveness of the project as a whole. It is believed that commercial efficiency characterizes technical, technological and organizational design solutions from an economic point of view.

The most significant definition is effectiveness of participation in the project. It is determined in order to check the feasibility of the investment project and the interest of all its participants in it.

The effectiveness of participation is assessed primarily for the project organizer enterprise (or potential shareholders). This type of efficiency is also called efficiency for the equity capital of the project.

The effectiveness of participation in the project includes such types as effectiveness of participation in the project of higher-level structures(financial and industrial groups, holding structures), budget efficiency investment project (the effectiveness of state participation in the project in terms of expenses and revenues of budgets of all levels).

The system of indicators determined to evaluate the listed types of efficiency and the methodological principles for their calculation are the same. The differences lie in the initial parameters that form the real cash flows for the project in relation to each type of efficiency. In other words, a unified and interconnected system of project parameters is embodied in performance indicators that are uniform in economic nature, depending on the scope of their application in the economic environment that they should characterize. Some exceptions are indicators of social efficiency. It is not always possible to take into account “external” effects in monetary terms. In some cases, when these effects are very significant, but it is not possible to evaluate them, only a qualitative assessment of their influence is inevitable.

Feasibility study (TES) and prices

The assessment of upcoming costs and results when determining the effectiveness of an investment project is carried out within the calculation period (calculation horizon).

The calculation horizon is measured by the number of calculation steps.

The calculation step when determining performance indicators within the calculation period can be a month, a quarter or a year.

Costs incurred by participants are divided into initial, current And liquidation, which are carried out respectively at the stages construction, functioning And liquidation.

For the valuation of results and costs, basic, world and estimated prices can be used.

Basic prices are understood as prices prevailing in the national economy at a certain point in time. t b. The base price for any product or resource is considered unchanged throughout the entire billing period.

Measuring the economic efficiency of a project in basic prices is carried out at the stage of feasibility studies of investment opportunities.

At the stage of the feasibility study (TES) of an investment project, it is mandatory to calculate economic efficiency in forecast and estimated prices. At the same time, it is recommended to carry out calculations in base and world prices.

Forecast price Tt product or resource at the end t The th calculation step is determined by the formula:

Tt = Tsb *J(t,tn),

Where Central Bank - basic price of a product or resource;

J(t,tн) - coefficient (index) of changes in prices of products or resources of the corresponding group at the end t th step relative to the initial moment of calculation t n (in which prices are known or basic prices are accepted).

For projects developed by order of government bodies, the values ​​of price change indices for certain types of products and resources should be established in the design assignment in accordance with forecasts of the Ministry of Economy of the Russian Federation.

Estimated prices are used to calculate integral performance indicators if the current values ​​of costs and results are expressed in forecast prices. This is necessary to ensure comparability of results obtained at different levels of inflation.

Estimated prices are obtained by introducing a defiling multiplier corresponding to the general inflation index

When developing and comparatively evaluating several options for an investment project, it is necessary to take into account the impact of changes in sales volumes on the market price of products and the prices of consumed resources.

When assessing the effectiveness of an investment project, the comparison of indicators at different times is carried out by reducing (discounting) them to the value in the initial period. To bring costs, results and effects at different times, the discount rate is used ( E), equal to the rate of return on capital acceptable to the investor (for a detailed description, see the materials on topic 3).

Non-economic efficiency of investment strategy implementation.

In the process of assessing the non-economic efficiency of the implementation of an investment strategy, the growth of the business reputation of the enterprise, the growth of fame and popularity of the trademark and brand of the enterprise, the increase in the level of controllability of the investment activities of its structural divisions (when creating “investment centers”), the increase in the level of material and social satisfaction of investment managers ( due to an effective system of their material incentives for the results of investment activities, a higher level of technical equipment of their workplaces, etc.).

This section can also assess the social side of the assessment issue. Here, a significant role will be played by the growth of professional skills, the acquisition of skills in working with large projects, automated programs, communication with foreign partners and many other non-economic aspects of investment activity, including in the culture of entrepreneurship and communication with government agencies and financial authorities.

If the results of the assessment of the developed investment strategy are positive, corresponding to the selected criteria and the mentality of investment behavior, it is accepted by the enterprise for implementation.

Thus, the development of an investment strategy allows you to make effective management decisions related to the development of the company, in the face of changes in external and internal factors that determine this development.

firstly, static methods were used to calculate the effectiveness of investments, which did not take into account the time factor, which is of fundamental importance for a financial investor;

secondly, the indicators used were aimed at identifying the production effect of investments, i.e. increasing labor productivity, reducing costs as a result of investments, the financial efficiency of which faded into the background.

Therefore, to assess the financial efficiency of a project, it is advisable to use the so-called. “dynamic” methods, based primarily on discounting the cash flows generated during the implementation of the project. The use of discounting allows us to reflect the fundamental principle “tomorrow’s money is cheaper than today’s” and thereby take into account the possibility of alternative investments at the discount rate. The general scheme of all dynamic methods for assessing efficiency is basically the same and is based on forecasting positive and negative cash flows (roughly speaking, expenses and income associated with the implementation of the project) for the planning period and comparing the resulting balance of cash flows, discounted at the appropriate rate, with investment costs .

Obviously, this approach involves the need to make a number of assumptions, which are quite difficult to implement in practice (especially in Russian conditions). Let's consider the two most obvious obstacles.

Firstly, it is required to correctly estimate not only the volume of initial capital investments, but also current expenses and revenues for the entire period of the project. The entire conventionality of such data is obvious even in a stable economy with predictable price levels and structure and a high degree of market knowledge. In the Russian economy, the volume of assumptions that have to be made when calculating cash flows is immeasurably higher (the accuracy of the forecast is a function of the degree of systematic risk).

Secondly, to carry out calculations using dynamic methods, the premise of stability of the currency in which cash flows are assessed is used. In practice, this prerequisite is implemented through the use of comparable prices (with possible subsequent adjustment of the results taking into account projected inflation rates) or the use of a stable foreign currency for calculations. The second method is more appropriate in the case of implementing an investment project together with foreign investors.

Of course, both of these methods are far from perfect: in the first case, possible changes in the price structure remain out of sight; in the second, in addition to this, the final result is also influenced by changes in the structure of foreign exchange and ruble prices, inflation of the foreign currency itself, exchange rate fluctuations, etc.

In this regard, the question arises about the advisability of using dynamic methods for analyzing production investments in general: after all, in conditions of high uncertainty and when making various kinds of assumptions and simplifications, the results of the corresponding calculations may turn out to be even further from the truth. It should be noted, however, that the purpose of quantitative methods for assessing efficiency is not an ideal forecast of the amount of expected profit, but, first of all, to ensure the comparability of the projects under consideration in terms of efficiency, based on certain objective and re-verifiable criteria, and thereby preparing the basis for making the final solutions.

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

Finally, measures to assess investment risk and the use of methods for taking into account uncertainty in financial calculations, which can 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.

Of the variety of dynamic methods for calculating the effectiveness of investments, the most well-known and often used in practice are the method of estimating the internal rate of return of a project and the method of estimating the net present value of the project. In addition, there are a number of special methods.

Net Present Value (NPV)

This method is based on comparing the value of the original investment (IC) with the total discounted net cash flows it generates over the forecast period. Since the cash inflow is distributed over time, it is discounted using a factor r, set by the analyst (investor) independently based on the annual percentage return that he wants or can have on the capital he invests.

Suppose a forecast is made that the investment (IC) will generate, over n years, annual income in the amount of P 1, P 2, ..., P n. The total accumulated value of discounted income (PV) and net present value (NPV) are respectively calculated using the formulas:

. (1)

Obviously, if:

NPV > 0, then the project should be accepted;

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

When forecasting income by year, it is necessary, if possible, to take into account all types of income, both production and non-production, that may be associated with a given project. Thus, if at the end of the project implementation period it is planned to receive funds in the form of the liquidation 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 does not involve a one-time investment, but sequential investment of financial resources over m years, then the formula for calculating NPV is modified as follows:

, (2)

where i is the projected average inflation rate.

Calculation using the above formulas manually is quite labor-intensive, therefore, for the convenience of using this and other methods based on discounted valuations, special statistical tables have been developed in which the values ​​of compound interest, discount factors, discounted value of the monetary unit, etc. are tabulated, depending on time interval and discount factor value.

It should be noted that the NPV indicator reflects a forecast assessment of changes in the economic potential of an enterprise if the project in question is adopted. This indicator is additive in the time aspect, i.e. the NPV of various projects can be summed up. This is a very important property that distinguishes this criterion from all others and allows it to be used as the main one when analyzing the optimality of an investment portfolio.

Scope and difficulties of the NPV method.

Using the NPV method, you can determine not only the commercial efficiency of the project, but also calculate a number of additional indicators. Such a wide range of applications and the relative simplicity of calculations have ensured that the NPV method is widely used, and currently it is one of the standard methods for calculating investment efficiency recommended for use by the UN and the World Bank.

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

The volume of cash flows within the investment project must be assessed 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 discounting principle used in calculating net present value, from an economic point of view, implies the possibility of unlimited attraction and investment of financial resources at the discount rate. Using the method to compare the effectiveness of several projects involves using a single discount rate for all projects and a single time interval (defined, as a rule, as the longest available implementation period).

When calculating NPV, as a rule, a constant discount rate is used, but depending on the circumstances (for example, changes in the level of interest rates are expected), the discount rate can be differentiated by year. If different discount rates are used during calculations, then, firstly, formulas (1) and (2) are not applicable and, secondly, a project acceptable at a constant discount rate may become unacceptable.

Return on Investment Index (PI)

This method is essentially a corollary of the net present value method. The profitability index (PI) is calculated using the formula:

.

Obviously, if:

PI > 1, then the project should be accepted;

PI = 1, then the project is neither profitable nor unprofitable.

The logic of the PI criterion is as follows: it characterizes income per unit of cost; It is this criterion that is most preferable when it is necessary to organize independent projects to create an optimal portfolio in the case of an upper limit on the total investment volume.

In contrast to the net present effect, the profitability index is a relative indicator. Thanks to this, it is very convenient when choosing one project from a number of alternative ones that have approximately the same NPV values, or when completing a portfolio of investments with the maximum total NPV value.

Differences between IRI (PI) and other methods for assessing an investment project

  • is a relative indicator;

    characterizes the level of profitability per unit of capital investment;

    represents a measure of sustainability of both the investment project itself and the enterprise that implements it;

    allows you to rank investment projects by IRI (PI) value.

Investment Internal Rate of Return (IRR)

The second standard method for assessing the effectiveness of investment projects is the method of determining the internal rate of return of the project (internal rate of return, IRR), i.e. such a discount rate at which the net present value equals zero.

IRR = r, at which NPV = f(r) = 0.

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