The Investment Decision
In the decision to invest, the following phases must be considered:
- Identification of investment alternatives (projects) that adapt to the strategy defined by the investor. Once the investor’s strategy has been established, the strategic planning will be developed, which will be carried out in several stages.
- Design and evaluation, organisation and modelling of the information regarding each investment opportunity in relation to the legal, accounting, tax, technical, social, commercial, economic, and financial aspects. The report on the viability of each investment opportunity allows the filtering and discarding of those projects that are not viable.
- Choice of the best investment opportunity among the different options can then be based on viable alternatives.
Importance of an Investment Project
The purpose of evaluating an investment project is to know its economic, financial and social profitability, in a way that resolves a human need in an efficient, safe and profitable way, allocating the economic resources that are available to the best alternative.
This technique can provide critical information to investors, and allow them to reject an unprofitable project and accept a profitable one.
The complete analysis of a project requires, at least, the performance of four complementary studies: market, technical, organisational, administrative and financial. While the first three fundamentally provide economic information on costs and benefits, the latter, in addition to generating information, allows building cash flows and evaluating the project.
It is very important to note that the market cannot be analysed exclusively on the basis of what already exists, but that projections should be made about the future.
Objectives of the market study
For the purposes of evaluating an investment opportunity the study is mainly aimed at the collection of economic information that has an impact on the investment project.
In relation to income this study acquires its greatest importance. Here, the consumer’s study must determine the existence of a real demand for the product in terms of its price, volume and periodicity, in a specific place and time.
Technical study of the project
From a financial perspective, this study aims to provide information to quantify the amount of investments and operating costs pertaining to this area.
From this can be obtained information on the needs of capital, labour and material resources, both for the start-up and for the subsequent operation of the project.
Study of the organisation of the project
This is associated with investment expenses and operating costs, usually managed by investment specialists such as Maritime Capital, that can determine the profitability or not of the investment opportunity.
The economic effects of the legal aspects that are most frequently considered in the viability of an investment project are those related to the tax issues, such as, for example, taxes on income and assets, and expenses.
The final stage in the analysis of the financial viability of an investment project is the financial study. The objectives of this stage are to organise and systematise the monetary information provided by the previous stages, to prepare the analytical tables and additional background for the evaluation of the project, and to determine its profitability.