Investment analysis is an investment property research tool that determines whether such property meets the specific needs of each investor.
Investment analysis includes an analysis of indicators that characterize the possible consequences of capital investments, as well as factors affecting the effectiveness of these investments. Also during the analysis, an assessment of risks, forms, conditions and methods of financing is carried out.
Analysis of investment activity is carried out in several stages:
- Making a list of investments. At this stage, all possible options for investment activity are considered, taking into account the consideration when investing of a possible replacement for newer and more modern equipment.
- Subsequent analysis is carried out to formulate a cash flow forecast for the future. In this case, the investment analysis should take into account only those cash flows, as a result of the investment of which positive changes in income after tax are expected from the depositor. All income and expenses that remain unchanged both before and after the project are not considered. All investments to expand the activities of the enterprise can be made from such sources: own, available funds, leasing and loan. When forecasting cash flows, external regulators such as taxes (for example, VAT, income tax), inflation and the Central Bank rate are used.
- A forecast of data for calculating barrier rates is not needed at all if the company operates in a country with a stable economic situation, expressed in low inflation and stable legislation. Otherwise, the calculation of this forecast is carried out taking into account such indicators as the average weighted cost of capital, inflation and all kinds of financial risks.
- The forecast of reinvestment activity is carried out using the method of extrapolation of trends.
- When calculating the net cash flow for each subsequent period, if you use your own funds or borrowed funds, you need to make depreciation calculation.
- When conducting an analysis of investment activity, it is advisable to use indicators of a high degree of reliability (barrier rate and degree of reinvestment). Only in this case, an indicator such as MIRR characterizes the profitability or effectiveness of a given project quite accurately. Otherwise, IRR. If there is only a barrier rate value, there is a DPI indicator.
- Assessment of the quality indicators of investment investments provides an analysis of the sensitivity of certain criteria to changes in such influential factors as the level of interest rates, inflation, the life cycle of the project, and the frequency of income generation. This calculation will allow you to identify significant risks for making appropriate investment decisions.
- Analysis of solvency and liquidity allows you to get a fairly reliable forecast in this area of activity of a business entity.
- Investment analysis for certain factors is mainly used to determine the impact of investments on the main indicators of the economic activity of the subject and is considered in the context of such indicators:
- receiving additional products for one ruble of investment;
- the ability to reduce the cost of finished goods per ruble investment;
- the payback period of the investment project at cost and profit.
Analysis of financial indicators during the implementation of investment projects will identify critical positions in the economic activity of the enterprise, help determine the causes of problems and make certain correct decisions.