Economic evaluation of the project (Part 1)
Hello dear readers, as agreed to the promised article.
This article was conceived in the continuation of the first article related to the financing of startups. Initially, I conceived it as a set of indicators that an investor pays attention to before investing money in a project, but it seems to me that these indicators will be of interest to other participants.
Using the indicators presented below, you can analyze almost any project, which allows you to sensibly evaluate the effectiveness of the implementation of a startup project.
However, due to the large amount of material, I decided to divide the issue of indicators for evaluating an investment project into a series of articles.
During the calculations, not the indicators of receivables and payables are often used, but the amounts of specific receipts of funds and their outflow are cash flows.
For a more complete understanding, you need to pay attention to the concept of cash flow.
Cash flow is a numerical series that is abstracted from its economic content and consists of a sequence of payments distributed over time. It is used to calculate indicators of economic efficiency of investments, as well as to analyze the cash flow of an economic entity over time.
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This definition corresponds to the general understanding of the flow as a set of moving objects during a certain time interval.
The NPV is the sum of the discounted values of the stream of payments brought to today. The NPV is the difference between all cash inflows and outflows, reduced to the current point in time (the moment of evaluation of the investment project). It shows the amount of cash that the investor expects to receive from the project after the cash inflows pay for its initial investment costs and the periodic cash outflows associated with the implementation of the project. Since cash payments are estimated based on their time value and risks, NPV can be interpreted as the value added by the project. It can also be interpreted as the total profit of the investor.
When comparing alternative projects, preference should be given to a project with a higher NPV.
NPV = ∑ ((NPT) / (1 + r) ^ t) - ∑ K / (1 + r) ^ t
ChDP - net cash flow
K - investments;
r is the discount rate.
Interpretation of results:
Important. A negative NPV can also be obtained with a positive calculated profit. Thus inefficiency! = Unprofitable.
A feature of this indicator is the accounting for the movement of borrowed funds, as well as fees for their use.
NPV = ∑ ((NPT - D - PP) / (1 + r) ^ t) - ∑ (K - KK) / (1 + r) ^ t
D - loan repayment;
PP - redeemable interest for the loan;
KK - attracted credit.
ID = NPV / ∑ K / (1 + r) ^ t
Due to the fact that the indicator is relative, we are able to compare incomparable in terms and amounts of investment start-up projects.
GNI is the interest rate at which the net present value is 0. The NPV is calculated based on the cash flow discounted to today.
VND = r1 + f (r1) * (r1-r2) / f (r1) - f (r2)
r1 is the value of the discount factor at which f (r1)> 0 (f (r1) <0);
r2 is the value of the discount factor at which f (r2) <0 (f (r2)> 0).
Project managers prefer this indicator for the following reasons:
It is often considered that a GNI is the maximum rate at which a loan can be taken to implement a project without making it ineffective. This statement is not entirely true, but we will not go into such deep details.
We reviewed a number of key indicators that characterize the effectiveness of launching a project, as well as found out the main points related to their interpretation.
The next article will consider a number of other indicators that need to be taken into account during the evaluation of projects.
PS In case of any questions regarding the presentation of the article, venture and project financing, I will be happy to help you with them.
PPS All definitions are taken from the site - Wikipedia.
This article was conceived in the continuation of the first article related to the financing of startups. Initially, I conceived it as a set of indicators that an investor pays attention to before investing money in a project, but it seems to me that these indicators will be of interest to other participants.
Using the indicators presented below, you can analyze almost any project, which allows you to sensibly evaluate the effectiveness of the implementation of a startup project.
However, due to the large amount of material, I decided to divide the issue of indicators for evaluating an investment project into a series of articles.
During the calculations, not the indicators of receivables and payables are often used, but the amounts of specific receipts of funds and their outflow are cash flows.
For a more complete understanding, you need to pay attention to the concept of cash flow.
Cash flow is a numerical series that is abstracted from its economic content and consists of a sequence of payments distributed over time. It is used to calculate indicators of economic efficiency of investments, as well as to analyze the cash flow of an economic entity over time.
')
This definition corresponds to the general understanding of the flow as a set of moving objects during a certain time interval.
Net present value (NPV / NPV)
The NPV is the sum of the discounted values of the stream of payments brought to today. The NPV is the difference between all cash inflows and outflows, reduced to the current point in time (the moment of evaluation of the investment project). It shows the amount of cash that the investor expects to receive from the project after the cash inflows pay for its initial investment costs and the periodic cash outflows associated with the implementation of the project. Since cash payments are estimated based on their time value and risks, NPV can be interpreted as the value added by the project. It can also be interpreted as the total profit of the investor.
When comparing alternative projects, preference should be given to a project with a higher NPV.
NPV = ∑ ((NPT) / (1 + r) ^ t) - ∑ K / (1 + r) ^ t
ChDP - net cash flow
K - investments;
r is the discount rate.
Interpretation of results:
- NPV> 0 - the project is effective, and its profitability exceeds the profitability of an alternative investment
- NPV = 0 - the investor should be indifferent whether to invest in the analyzed investment project, or in the alternative direction
- NPV <0, then the project is ineffective.
Important. A negative NPV can also be obtained with a positive calculated profit. Thus inefficiency! = Unprofitable.
Net present value of net worth (CHDDsk)
A feature of this indicator is the accounting for the movement of borrowed funds, as well as fees for their use.
NPV = ∑ ((NPT - D - PP) / (1 + r) ^ t) - ∑ (K - KK) / (1 + r) ^ t
D - loan repayment;
PP - redeemable interest for the loan;
KK - attracted credit.
Yield index
ID = NPV / ∑ K / (1 + r) ^ t
Due to the fact that the indicator is relative, we are able to compare incomparable in terms and amounts of investment start-up projects.
Internal Rate of Return (IRR / IRR)
GNI is the interest rate at which the net present value is 0. The NPV is calculated based on the cash flow discounted to today.
VND = r1 + f (r1) * (r1-r2) / f (r1) - f (r2)
r1 is the value of the discount factor at which f (r1)> 0 (f (r1) <0);
r2 is the value of the discount factor at which f (r2) <0 (f (r2)> 0).
Project managers prefer this indicator for the following reasons:
- GNI to a greater extent ensures the confidentiality of information about the project
- The indicator of GNI allows you to determine the "margin of safety."
It is often considered that a GNI is the maximum rate at which a loan can be taken to implement a project without making it ineffective. This statement is not entirely true, but we will not go into such deep details.
findings
We reviewed a number of key indicators that characterize the effectiveness of launching a project, as well as found out the main points related to their interpretation.
The next article will consider a number of other indicators that need to be taken into account during the evaluation of projects.
PS In case of any questions regarding the presentation of the article, venture and project financing, I will be happy to help you with them.
PPS All definitions are taken from the site - Wikipedia.
Source: https://habr.com/ru/post/137801/
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