Industrial investments are the foundation of any enterprise. Large investments of capital will allow creating or updating the existing material and technical base, replacing physically or morally worn out fixed assets, increasing volumes of activity, mastering new types of products, expanding sales markets, etc. But how to ensure that potential investors decide to invest their money in the development of a particular company? To do this, they need to show the stability of the organization, its reliability, competitiveness and profitability. For this purpose, indicators of the investment attractiveness of the enterprise are calculated.
Basic concept
What is meant by investment attractiveness? This concept is a set of various indicators of the financial and economic plan. With their help, the level of company positioning in the market is determined, the external environment is assessed, and the potential of the final result is predicted.
In general, a large number of factors influence the attractiveness of investment projects. In addition to qualitative as well as quantitative values (economic, political, legal, social /), there is also an internal positioning of the enterprise in a market environment, as well as a qualitative assessment of its financial and technical potential. All this model in the aggregate allows us to determine the final result.
The investment attractiveness of an enterprise cannot be separated from the development of the industry in which it operates. That is why it is not possible to give an exact definition of this concept. Indeed, each sphere of the national economy has its own set of properties, which make it possible to assess the investment attractiveness of the enterprise.
What is it for? With the help of the assessment, the investor is able to assess the profitability of his investments in the project. According to experts, those who are going to provide capital for the development of the company should not forget that their activities are tied to industries and regions of the country. And the conditions that take shape in production largely depend on this. That is why the attractiveness of investments is determined at once at several levels. It:
- micro level - the calculation of the assessment is based on the indicators of a particular enterprise;
- meso-level - the entire region in which the company is located is considered;
- macro level - the issue is being studied at the country level.
Attractiveness of the enterprise for investment
This concept represents a certain combination of the most diverse characteristics that show how profitable it is for a person with capital to invest it in the development of the company.
If we consider briefly indicators of assessing the investment attractiveness of an enterprise, the first thing to pay attention to is a factor indicating the presence of stable income that a company receives over a significant period of time. To date, many companies seek to attract additional capital. Not surprisingly, there is quite fierce competition in this direction. To attract the necessary funds, it will be necessary to develop a project that will allow a potential investor to predict his income after the transaction.
The development of a report to assess the investment attractiveness of the enterprise is carried out with the inclusion of various financial indicators. A similar document allows you to see all the nuances of the company.
To assess the investment attractiveness of the enterprise according to the balance sheet drawn up by the accounting department, the following are calculated:
- Liquidity. The value of this indicator indicates how quickly the assets of the enterprise (if necessary) can be converted into cash.
- Property status. This indicator reflects the share of non-current and current assets in the total assets of the company.
- Business activity. The calculation of this indicator will allow you to characterize those financial processes of the enterprise, on which their profit primarily depends.
- Financial addiction. Its definition will show how much the company needs external money sources and whether it is able to carry out its activities without receiving additional funds.
- Overall profitability. It is a reflection of the effectiveness of the organization using its existing financial plan capabilities.
Among the indicators of investment attractiveness of the enterprise is also:
- Endowment with resources.
- Number of staff.
- Profitability of finished products.
- The level of capacity utilization.
- Depreciation of fixed assets.
- Availability of production and fixed assets, etc.
The main criterion for a decision based on an assessment of the investment attractiveness of an enterprise is the level of risk of the project, as well as its consequences. The calculation of this indicator is made after clarifying the category of possible consequences. Moreover, all existing risks can be expressed in the following:
- decrease in income;
- changes in market conditions;
- increased competition;
- price policy changes;
- loss of liquidity;
- default, etc.
Project analysis
Investment business has significant differences from the standard model of doing business. It is based on the concept of the work of invested capital without direct participation in the operational work of the company. In this regard, there is an urgent need for a thorough analysis of the investment attractiveness of the enterprise. This will allow you to work out the right solution using available data and applying analytical skills.
In general, the analysis of the investment attractiveness of the enterprise involves work in the following areas:
- The study of the basic working conditions of the company. At the same time, political and macroeconomic factors are considered.
- The study of existing market conditions in the field of the company.
- Consideration of the technical aspects of the enterprise. In this direction, the power supply and the technological level of the company, its provision with resources and logistics are subject to analysis.
- The study of indicators characterizing the financial activities of the company. The data obtained will help to understand whether the company is able to generate positive financial flows.
- Analysis of the organizational capabilities of the investment object. In this case, the quality of human resources, as well as the ability of managers to make adequate and timely decisions, are considered.
- Consideration of the information component of the business. In this case, it is supposed to study the presence of intellectual property in the company, as well as its integration into the interstate information space.
- Asset security research. It is important for an investor to understand how a company is able to withstand adverse social, financial and economic factors.
Identification of assessments of the investment attractiveness of an existing enterprise includes the use of one or more techniques, based on which an analysis is carried out that allows you to make a decision on the allocation of capital.
Data Collection Methods
Approaches to assessing the investment attractiveness of an enterprise can be very different. This is due primarily to the fact that today the content of this category has not yet been fully explored and a unified methodology for analyzing the risks of investing in a company has been developed, on the basis of which it was possible to give an unambiguous description of the current state of affairs.
Techniques developed by specialists use a wide variety of indicators. Moreover, each of them interprets the result in its own way.
Consider the methods used in practice to assess the investment attractiveness of an enterprise.
Regulatory approach. Important Features
Analysis and assessment of the investment attractiveness of an enterprise is very often carried out on the basis of calculations performed in accordance with documents adopted at the legislative level. Thus, methodological recommendations specially created for this sphere have been widely used. They were adopted in accordance with the order of the FSFD of Russia dated January 23, 2001. It is used to assess the financial condition and investment attractiveness of an enterprise. Government Decree of June 25, 2003. This document approved the rules for conducting financial analysis by an arbitration manager.
In the above sources, you can find the main indicators that serve to assess the financial and investment attractiveness of the enterprise. Among them: business activity and liquidity, the efficiency of the use of working resources, etc.
However, these indicators can characterize the investment attractiveness of the company only within the narrow framework of the traditional approach to its assessment. In addition, the values recommended by these regulatory documents are applied in the process of bankruptcy proceedings. In this regard, it is quite difficult to use them directly to determine the attractiveness of the company for capital owners.
Discounted cash flows
This methodology for assessing the investment attractiveness of an enterprise is based on determining the value of the company. For this, a cash flow forecast is made that will indicate the profitability of its future activities.
The period for calculating indicators using this method is taken within 3-5 years. In this case, several cash flow forecasts are made. They are calculated up to a certain point and in the post-forecast period. Both the one and the other indicator are given on the date of the assessment to the current value of the company. All this is done when they are discounted at the rate that reflects the risk associated with the receipt of financial flow. As a result, the current value of the company will be formed. This indicator will allow us to draw a final conclusion about the attractiveness of the project for capital investment.
When using this method, ongoing research should begin with an analysis of revenue, other expenses and income, as well as the net profit of the enterprise. The obtained values will indicate the growth dynamics of these absolute indicators, which are used in the preparation of financial statements. Next, a medium-term forecast is built. In this case, an assessment of the investment attractiveness of an existing enterprise includes an assumption about their growth dynamics. After that, projected and actual cash flows are discounted at a rate that reflects the current situation. In other words, they lead to the current value of the company. All this allows the investor to find out its real value and determine the available potential.
Nevertheless, according to some experts, the method for determining discounted financial flows is not entirely correct. Indeed, when it is applied, the indicators of the forecast period are calculated during the mechanical transfer of the existing trend in the dynamics of the enterprise. The assumptions made in this case are purely subjective. That is why there is no guarantee of the absence of errors in the calculations.
Analysis of factors of both internal and external influences
When applying this technique, indicators for assessing the investment attractiveness of an enterprise are identified at several interconnected stages. The sequential steps of such work include:
- Highlighting the most important factors (internal and external) to attract the attention of investors. This work is carried out using the Delphi method.
- Building a regression multifactor model. As a result, it becomes clear the influence that the selected factors can have on the investment attractiveness of the enterprise.
- Analysis of the data. In this case, the identified factors are taken into account and specific recommendations are developed.
The described method is quite effective in assessing the investment attractiveness of a company. After all, its application provides an integrated approach to the study of the enterprise and taking into account all available internal and external factors. However, such a method cannot be called ideal. Indeed, when passing through the first and third stages, the examination is carried out on the basis of questionnaires and surveys. This makes the final result dependent on subjective assessments, which leads to a decrease in its accuracy.
Seven-factor model
When applying this technique, the main indicator for determining the attractiveness of an enterprise for investors is also such as return on assets. The definition of this criterion is due to the fact that the activities of the company largely depend on the state of the resources that it has, on their composition and structure, quality and quantity, interchangeability and complementarity, as well as those conditions that ensure their maximum efficient use.
In the seven-factor model, the return on assets is compared with the same indicator calculated from sales, as well as with the cyclical nature of current assets, current liquidity ratio, short-term liabilities and receivables, the share of accounts payable in the amount of borrowed capital and the ratio of the assets of the organization to the company's debt on loans.
The analysis of these indicators allows you to identify the impact of these factors on the final result. An investor, evaluating the return on assets, must understand that the higher it is, the more efficient this company is. And here an integral assessment of the investment attractiveness of the enterprise is made. For this, the change indices of all identified factors are multiplied. The obtained value determines the level of attractiveness of the object for investment.
When using the seven-factor model, it is possible to mathematically accurately determine the indicator that will become the main criterion for making this or that decision. Nevertheless, it will take into account only internal data indicating the activities of the enterprise, and will examine only the financial side of the issue.
Integral assessment using internal indicators
When applying this technique, factors are grouped in five blocks. All of them are internal indicators of the company, which directly affect its attractiveness to investors. Among them:
- the efficiency with which fixed assets and current (tangible assets) are used;
- state of finance;
- use of human resources;
- work in the investment direction;
- business efficiency.
Considering the indicators of each of these blocks, the potential investor makes calculations that are reduced to obtaining an integral indicator that can indicate the attractiveness of the enterprise for investing capital. Such calculations consist of two stages. On the first of them, the standard and reference values of all available quantities are identified, as well as their weight in the complex indicator. After that, taking into account all previous years, the calculation of potential functions is carried out.
The role of a comprehensive indicator is played by the calculation of rating assessments of the investment attractiveness of enterprises. By this concept is meant the indication of the positions of the analyzed object according to the existing scale of indicators. The rating score is a comparison of a system of data indicating the effectiveness of the financial and economic work of a company with a conditionally accepted enterprise as a benchmark, the results of which are considered the best in the market research area.
At the end of the stage, the data obtained are brought together, and for each of the blocks they are comprehensively evaluated. The result of the second stage is a mathematical calculation of the integrated assessment of the investment attractiveness of the enterprise.
This technique has objectivity. And this is her clear advantage. , . .
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- Increasing the stable work of the company in the manufacturing sector. The key to success in this case will be the effective use of those resources that the company possesses. For example, with five out of ten machines operating in the workshop, the former will quickly wear out physically, while the latter will rust over time. But at the same time, products manufactured by the enterprise should not be stockpiled. It must be immediately sent for implementation. That is why the company's work in this direction should be balanced very clearly.
- Ensuring commercial success. Only well-functioning firms can claim first place in the popularity ranking and receive additional capital.
- Maintaining financial stability. To obtain additional funds for development, it will be necessary to have performance indicators that are at a sufficient level. How, in this case, can the desired grade be improved? Ways to increase the investment attractiveness of the enterprise and improve its work are to reduce the amount of existing debts, as well as to minimize the cost of carrying out activities.
- Correctly organizing the work of the company. To increase the attractiveness of the enterprise for investors, it will be necessary to consider the feasibility of having certain departments, as well as some units of the managerial structure. By improving management, it is possible to achieve rational use by employees of working time, and therefore, the attractiveness of the company for the investment of additional financial resources.
- Developing employee incentive systems. Successful activities of the company largely depend on the mood with which employees fulfill their duties. With pleasure, they will work with the existing system of incentives and career opportunities, knowing that they receive a decent reward.
- Introducing innovative technologies. Attractive for investors are those enterprises that offer high-quality products manufactured using modern technologies on the market. In order to become one of them, you will need to maintain the equipment at the highest level, as well as employ only highly qualified specialists.