How to evaluate an investment project

Evaluation of any investment project depends on the financial viability of the entire enterprise. It is worth considering the various analysis methods used to predict the capital investment plan.

Instruction manual

1

Apply the conditional highlight method. It is appropriate when the project is independent of the enterprise. To this end, he appears as a separate legal entity with its liabilities and assets, costs and revenues. Using this technique, you can evaluate the growth efficiency and financial viability of the project. But it assumes errors in the calculations, which are due to the isolation of the investment plan.

2

Use the change analysis method. Make a calculation of only the increments that the project introduces into the enterprise. The purpose of this approach is to compare the growth in net revenue with the amount of investment required to increase profits. The advantage of this method is the simplicity of preparing the initial data.

3

Evaluate the project using the join method. The method consists in building a financial plan for a company implementing this investment plan. It includes a forecast report on profit, cash flows and the balance sheet of the company. In this case, you need to know the history of the enterprise well in order to make similar forecasts for the future.

4

Use also the overlay method. First, consider the project itself, analyze its economic efficiency, financial viability. Then prepare the financial plan of the organization, but without taking into account the investment plan. Then combine the results of the present project and enterprise activities. The results can tell you about the financial viability of the company, given the investment project.

5

Finally, evaluate the investment project by comparison. The essence of the method is to first describe the budget plan of the enterprise that implements the project. Then describe the current production (excluding the project). Based on this, evaluate the financial viability of the company implementing the investment plan. Compare net income with and without a project. The difference will give an accurate assessment of the investment project.

Useful advice

Entrust the assessment of the financial condition of the enterprise to someone who is well versed in the structure of the company and knows its history.