Large investments are a natural occurrence for a country with a market economy. And, of course, investors are focused on obtaining stable profits. But for the project to be profitable, it must be subjected to competent analysis.
Why investment analysis is needed
When corporations or enterprises invest in a certain region or segment of a business, they preliminarily conduct an analysis regarding the liquidity of the chosen sphere. It is important to do this, since investments are a long-term project and a mistake as a result can lead to significant losses.
In order to conduct a full investment analysis, specialists and experts of various profiles are involved. Obtaining accurate results is possible only if, at each stage of the study, different methods and approaches for assessing the actual sphere are applied. We are talking about statistical, mathematical, economic and other methods.
What is investment analysis focused on?
It is worth noting that such analytics is always a complex assessment of the appropriateness of financing specific projects. Such a process always has significant dynamics and is divided into two key areas: temporal and objective.
If we consider in more detail the subject factors, then they will look as follows:
- environmental Safety;
- determination of the presence of financial risks;
- economic environment;
- objectives and goals identified for investment;
- identification of the availability of financial markets and their characteristics;
- investor plans regarding organization, financing, marketing, etc.
Information as part of the study of these factors should be worked out even during the preparation of the project and only later, in the process of analysis.
As for the temporary direction, it can include the study of work that has been done throughout the project from the very beginning and at the same time ensure the constant development of the latter.
If we analyze the effectiveness of various projects, we can conclude that most of the investments that were made after the segment evaluation were successful. Those that did not bring the expected profit turned out to be such only because of an insufficiently deep and competent analysis or its complete absence.
Analysis Functions
Investment analysis of any project has a number of key functions:
- Identification of financial, environmental, technological and organizational difficulties that may occur within the framework of the project.
- Develop an effective data collection structure. In this case, the priority is to ensure the effectiveness of the measures necessary for the implementation of the project.
- Competent regulation of decision-making, based on the analysis. This takes into account any alternatives.
- Choosing the most effective technologies for making investments and determining the sequence of events.
- Assistance in the decision-making process regarding the relevance of attracting investment in the future.
Tasks
As for the tasks that should be performed by specialists carrying out financial and investment analysis, they look as follows:
- Assessment of profitability and risk parameters, which are the most acceptable for the investor.
- Selection of effective sources of project financing and analysis of their cost.
- Selection of relevant investment solutions that contribute to strengthening the competitive ability of the enterprise. This takes into account strategic and tactical goals.
- Development of recommendations regarding the implementation of the project. Subsequently, experts conduct investment monitoring focused on evaluating the results of investments, as well as quantitative and qualitative indicators.
Analysis objectives
Analysis of investment projects is always focused primarily on determining the fact of how expedient and valuable the planned investments are. In other words, it is important to calculate the result that will be obtained after investing. Such a result can be defined as the difference between the level of benefits of the company before and after the implementation of the project.
Thus, the investment project is not approved until the combination of all factors favorable for the implementation of the project is determined using various analysis methods. It is under these conditions that it is possible to ensure the reimbursement of funds invested by investors and to obtain stable profits in the future. In turn, constant income allows you to ensure the profitability of all investments at the level that the investor expects.
How enterprises are evaluated
When it comes to investing in a particular company, first of all, its investment attractiveness is evaluated. This term should be understood as a set of financial, commercial and production characteristics of the enterprise. The features of managerial activity are also taken into account.
How investment-specific a company is is determined by analyzing specific factors:
- Analysis of return on equity. As mentioned above, in order for the project to be profitable, a constant and high income is required. Therefore, before investing in a certain enterprise, an assessment of the potential for generating profit takes place, which is compared with capital invested initially.
- Asset turnover. In order to determine what the investment attractiveness of the company is, it is necessary to establish the speed with which the invested funds will turn around.
- Financial stability. In this case, we are talking about assessing the risks that an investor may face. To determine this factor, an analysis of the structural formation of investment resources is used. Along with this, a determination is made of the level of financing of current economic activity, which is optimal under existing conditions.
- Asset liquidity assessment. Such analytics make it possible to determine the fact how a particular company is able to pay according to its short-term obligations. The ability of an enterprise to avoid bankruptcy through the quick sale of certain types of assets is also taken into account.
It is important to understand that the investment value of a company is determined taking into account the stages of its life cycle. The fact is that the same indicators can have different values depending on the specific stage.
Objects of investment
It should be understood that investment analysis can be focused on the assessment of various objects. And it depends on the fact about which investments we are talking about - capital or financial.
As a capital investment, you can determine the costs associated with the acquisition of land, building structures or new equipment. This category includes investing to improve production, conduct an advertising campaign or reorganize the production process.
Analysis of investment projects involves the study of both individual objects and combined ones.
As for assessing the prospects of financial investments, in this case, the object may be the financial and legal aspects of capital investments in securities, government obligations and corporate bonds.
Analysis Methods
In most cases, if a corporation intends to acquire shares in a company, investment analysis methods are used in the following format:
- Analysis of discount flows. In this case, the income from the acquisition of securities is estimated.
- Relative analysis of the absorption operation.
- Valuation through replacement. We are talking about accounting for the capital construction of the facility from scratch at prices valid at the time of analysis.
- Comparative analysis of enterprises. Economic indicators are taken into account.
Factor analysis may also be used. Its essence boils down to assessing the impact of certain factors on company performance.
findings
Considering investment analysis (an example can easily be found on the network), it makes sense to pay attention to the fact that the methods of assessing the financial attractiveness of a company that it includes are more than relevant. Using this analysis, investors can avoid investing in unprofitable projects and optimize the process within the selected segment.
