Rapid Assessment Of Capital Investment: An Index Of Profitability Of Investment

By | February 24, 2011

For budgeting and investing special weight has a preliminary analysis carried out on the stage of developing a business plan (examination of investment projects, business plan development, economic study) and promotes the adoption of reasonable and sound management decisions. The main purpose of this analysis will be an assessment of the possible economic efficiency of investments, ie The impact of ongoing capital investments, which are assumed proektom.Analiz index index return on investment is useful if: operating costs are high relative to investment costs and projects, where revenues begins to flow at a fairly early stage of project implementation. Index return of capital investment is defined as the ratio of net cash flow to the volume of investments increased by one. The indicator answers the question: what is the value generated by the project revenues generated per unit inaestitsy. Index return on investment = 1 + Balance of cash flow / investment balance of cash flow includes cash flows from operating and investing activities, as well as% of loans used to finance capital investments. This indicator allows us to calculate the cash flows generated by the project and can be used as One of the preliminary indicators for assessing the effectiveness of investments in the case of developing a business plan (business plan development, feasibility studies, examination of investment projects).

Index return on investment = 1 + The final balance of the flow for 4 years / Total capital investment because of 4-year = 1 + Rub./400 226 thousand rubles. = 1.56 result of the evaluation of capital investment: The index of profitability of capital investment takes the high rates, so data investments profitable venture. Merit figures are estimates of capital investment – simple calculations, it can also be used as an auxiliary in investment efficiency and the development of business plan (the examination of investment projects, feasibility studies, business plan development). However it must be remembered that the index can not be used to compare multiple projects, so as not takes into account the cash flow over time. To solve such problems is necessary to use indicators that require more complex calculations, such as black holes, npv, irr, etc.

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