Topic №11: Evaluation of financial and economic efficiency of investment projects

The effectiveness of investment projects can be evaluated both quantitatively (performance indicators) and qualitative characteristics.

• The effectiveness of investment projects can be evaluated both quantitatively (performance indicators) and qualitative characteristics.
• Indicators of efficiency used in order to:
• - Evaluate benefits of the project or participation in it;
• - Identification of the optimal conditions for effective implementation of projects;
• - Assessment risks associated with the project;
• - Assessment of project sustainability;
• - Economic evaluation of the results of selecting one of alternative projects (project options), or select a group of independent projects from a given list with a limited amount of financial resources.

In an analysis of the effectiveness of investments are mainly oriented to the following indicators:

• The need for funding (Investment);
• Net income;
• Net Present Value;
• Profitability index;
• Discounted Payback period;
• Internal rate of return;
• Payback period.

The main sources of information of data analysis of the investment are accounting and reporting:

• “Balance sheet”;
• "Profit and Loss“;
• "Statement of Cash Flows”;
• Information on the financial status of the organization;
• The data of corporate planning and forecasting.

Simple methods of an assessment of investments

Simple (traditional) methods of an assessment of investments are among the oldest and were widely used still before the concept of discounting of cash flows got universal recognition as a way of receiving the most exact assessment of the acceptability of investments. However and to this day these methods remain in an arsenal of developers and analysts of investment projects. The reason for that - possibility of receiving by means of such methods of some additional information. And it is never harmful at an assessment of investment projects as allows to reduce risk of an unsuccessful investment of money.