The investment analysis
The investment analysis - the research of an investment property defining it conformity to specific requirements of the concrete investor. The investment analysis is an analysis of the indexes characterising possible consequences of investments, the factors influencing their efficiency, an estimation of risks, and also forms, methods and terms of financing.
Process of the investment analysis switches on following stages:
1. Drawing up of the list of the alternate investment
The greatest and more often meeting error in a capital investment project choice is a consideration not all optional versions of investment.
Optional versions of the decision of a problem:
1. Replacement new (modern and-or more productive) the equipment;
2. Replacement with the similar equipment;
3. Transfer under the subcontract agreement;
4. To undertake nothing;
5. To terminate production.
2. Preparation for each alternative of a cash flow forecast
The investment analysis considers only cash flows, that is result of changes in receipt of incomes and expenses after the taxation, caused by capital investment project realisation. Any expenses or the incomes which volumes remain invariable before capital investment project realisation are not taken into consideration.
Depending on the schema of attraction of money resources:
- Financing at the expense of internal funds;
- Financing under the schema leasing;
- Financing at the expense of the loan.
The forecast of the data is necessary for a cash flow forecast about a tax environment and inflation:
- THE VAT;
- The profit tax;
- Wealth tax;
- A rate of inflation;
- Other taxes (for example, the transport tax, the uniform social tax, the tax to possibility of accidents etc.) are if necessary considered also.
3. The forecast of the data for account and account of barrier rates
For the companies working in the countries with low or an inflation fixed level, the stable legislation, having a fixed level of reinvestments and a fixed level of risk or the price of the capital application of variable rates has no practical sense (in this case unreliability of the cash flow forecast and size of rates considerably exceeds a difference of difference of level of rates).
Depending on the developed situation, the variant of account of the forecast of the barrier rates, yielding most authentic result (the forecast of the data and the procedure of payments) gets out:
- The barrier rate only after allowing for inflation;
- The barrier rate with allowance for a fluidized average price of the capital, WACC;
- Account of the barrier rate with allowance for risks.
The situation when account by the above-stated variants is done for the past (proximate) periods is possible and then extrapolation is spent:
- Linear trend, arithmetic-mean;
- Curvilinear trend, 3 parametrical.
4. The forecast of the data for account and account of level of reinvestments
For possibility of application of 3 models the forecast of the data is manufactured for account of level of reinvestments (the forecast of the data and the procedure of payments). As well as in the forecast of barrier rates it is possible to use an extrapolator of trends.
5. Account of a pure cash flow for each period
At the expense of internal funds and a variant at the expense of the loan it is necessary to manufacture amortisation predesign for a variant of financing.
For the schema of financing at the expense of the loan loan predesign is besides done.
Depending on the schema chosen in 2 item:
- The cash flow procedure of payments (financing at the expense of internal funds);
- The cash flow procedure of payments (financing under the schema leasing);
- The cash flow procedure of payments (financing at the expense of the loan).
6. Account of parametres of a capital investment project
It is better to have a few indexes of a capital investment project, but these indexes should be calculated with high degree of reliance and completely cover the basic characteristics of a capital investment project.
If with high degree of reliance the forecast of the barrier rate and level of reinvestments most precisely characterises efficiency (profitability) of the design index MIRR is known. If the data about rates is not present IRR. If there is only a barrier rate, DPI.
7. The analysis of sensitivity and an estimation of qualitative factors
Important point at an estimation of efficiency of capital investment projects is the analysis of sensitivity of considered criteria on change of the most essential factors: a level of interest rates, rates of inflation, a billing period of life cycle of the design, frequency of reception of incomes etc. It will allow to define the most brave parametres of the design that matters at a substantiation of the investment decision.
8. An estimation and comparison of the alternate investment
Depending on a task in view, the parametres characterising a capital investment project get out, and then on them comparison and a choice optimum (optimum) designs is manufactured.
Generally, each stream of payments should be compared to the best alternative, from the point of view of efficiency and risk.
To operate a great number of capital investment projects it is more difficult, than several large.
In analytical the conclusion words is necessary to express that it is impossible to describe in figures.
9. The analysis of change of liquidity and solvency
Reliability of similar forecasts (the report on profits-losses and a balance sheet), in modern conditions, so low what to use their data for account of long-term forecasts has no practical sense, except the analysis of change of liquidity in initial stages.
To make really authentic forecast for term it is more than 2 years a problem far not the trivial: too many casual and independent factors influence these indexes.
For a substantiation of loan raising and financing under the schema leasing is better for indicating that any large changes for design realisation it is not expected: i.e. a capture of additional credits etc. or to describe possible changes.
The forecast of the data and account for the analysis of change of liquidity and solvency.
10. The posleinvestitsionnyj analysis
The posleinvestitsionnyj analysis allows to carry out the analysis of errors and defects and by that to improve an estimation of the subsequent capital investment projects. Raises a skill level of the analyst.