Assessment of investments is a process which requires certain skills and a competent approach from the contractor. The fact is that the investor is interested in getting the maximum profit, while having a minimum degree of risk of loss of investments. Many of the entrepreneurs invest money gradually, while assessing the degree of reliability and level of profitability. If you take a rash step, you can just lose all the money.
Valuation of investments is considered one of the ways to manage finances. Its essence is that experts analyze the profitability of this project and its degree of risk, as well as the payback period of the investment. As part of the analysis, economic, political and social factors are taken into account, as well as a validation of the compiled business plan. This procedure allows you to accurately determine the main indicators and identify the level of their effectiveness.
As a rule, investment appraisal is necessary to determine the most favorable lending or capital investment conditions, as well as to search for an investor who will help to implement a particular project.
The result of this procedure is the compilation of a detailed report that contains comprehensive answers to questions about the degree of effectiveness of invested funds, as well as the level of profitability and profitability of the project as a whole. Based on these data, the customer can decide whether it makes sense at all to invest in this project, what are the possible options for its improvement and processing.
In general, investments are divided into long-term and short-term. Such a classification takes into account the terms of sponsorship. Evaluation of long-term investments takes a long time, because the entrepreneur must conduct a thorough analysis and diagnosis at the initial stages of the emergence and development of the project. Such a procedure will help to calculate the possible prospects for the next few years. If this is not done, then most likely the investor will simply refuse to provide sponsorship, because he will not know the development plan of the organization.
There is such a thing as an assessment of the effectiveness of investments. This is a system of certain principles that are designed to determine the effectiveness of the choice for the implementation of certain investment goals. There are several principles for carrying out this procedure:
- The assessment, which is based on indicators of net cash flow.
- Reduction to the present value of the amount of cash flow and the amount of invested capital.
- The choice of a discount rate, which is carried out during the execution of 2 points.
The fact is that if the investment assessment is carried out competently, this is the key to confidence that the decision on a cash investment is made correctly, and the prospects are evaluated with maximum accuracy.
There are several investment assessment methods that are used by specialists:
- Discounting.
- Calculation of the period for which this investment can pay off.
- Calculation of the rate of profit that is supposed to be received for all capital
- Determining the cost effectiveness that went into production.
- The difference between the amount of income and costs.
- Comparative analysis of profit from investing money capital.
The accuracy of the investment assessment directly depends on the degree of complexity of the project.
The method associated with discounting takes into account the effectiveness of the investment in a specific period of time, which must be determined in advance. As a rule, this method is applicable for long-term investments for a period of more than five years.