any decision related to the nature of the investment is sure to assess the economic efficiency of the projects.This often raises the question of how the parameters of efficiency, what criteria to prefer.For example, what is more important: a lower risk or higher efficiency?Therefore, the need for a systematic approach to this issue - is obvious.We need objective methods of evaluating investment projects that take into account the economic, industrial, social, environmental and even political situation in each case.When speaking about the factors of the environment, we must not forget also about the time factor.
main methods for evaluating investment
One of the main requirements to the enterprise in the market environment is its ability to create added value, which includes the salaries of employees, loan interest income, the minimum obligations to shareholders.If the company does not have this ability, it lost its competitive edge, it is forced out of the market.
company develops due to an increase in net income, which is formed from the net profit (enrichment of the owner), depreciation and amortization.Therefore, as the criterion of efficiency can be considered value of the ratio of added value and capital that has been spent on its creation, and the more (services or products must be of high quality), the enterprise profit per unit costs, the more competitive it will be.
Some methods of evaluation of investment projects based on this performance criteria.They are profitable (spectacular) and costly methods:
- cost method is based on the analysis of project-related costs.They make it possible to assess the economic effect of the annual project in comparison with an alternative.
- yield or effective, method is based on analysis of the results of the investments, that is, profit (extra, book, net), net present value (NPV), net production, the annual economic effect.NPV - a reflection of the absolute result from the investment, and PI (profitability index) and IRR (internal rate of return), including the efficiency factor - the relative.
take into account the time factor methods of evaluation of investment projects are divided into two main groups: static and dynamic.
Static methods (comparison of costs, payback, profit margins) are based on figures using accounting estimates, for example, the coefficient of efficiency, given the cost, the payback period, the annual economic effect.
Dynamic methods (backfilled value, annuity, discounting) using figures that are based on the net present value, internal rate of return, index of return on investment, payback period, ie on discounted estimates.
methods of evaluating investment projects are differentiated also by the number of criteria used in the evaluation.From this position, the valuation model is divided into regulatory and multifactorial, and in the methods of single- and multi-criteria distinguish.
When multi-criteria methods evaluation criteria of optimality, in addition to the profitability of the project, act as indicators such as the stability of capital growth, security, risk, payback, social and environmental performance.Since the normative model evaluation was performed only on the basis of financial and economic indicators, with the multi-criteria methods should apply multifactor modeling.
The efficiency can be calculated in the forward-looking or current prices:
- at the initial stage of development of the investment project calculations can be carried out at current prices;
- efficiency of the whole project make in the forecast, and at current prices;
- to develop financing schemes and evaluation of participation in the used target prices.
