Financial Investment and Project Evaluation (25% beneficiary set to Null)
Introduction
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Before diving into the meanings of financial investment and project evaluation, we have to define so terms that align with the concepts of investment and evaluation.
Investment in simple and clear terms is "pledging one's resources and keeping them for unforeseen opportunities that might occur in the future."
Concepts of investments include financial and economic investment. While economic investment refers to remunerative actions taken to boost, advance, and control the advantageous aspect of the existing stock of capital, Financial investment forms the bane of our topic of discussion.
Financial Investment
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This attributes to a swap of monetary demands that is investments that yield monetary returns such as real estate, mortgage, stocks, and bonds. The assets under this investment umbrella are vague.
Notable Differences Between Economic Assets and Financial Assets
| Economic Assets | Financial Assets |
|---|---|
| Tangible Goods | Intangible Goods |
| Buildings | Stocks, and Bonds |
| Machinery | Real Estate |
| Vehicles | Mortgages |
| Breeds Proceeds | Financial Claims from Economic Assets |
Project Evaluation
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A project entails the purchase of individual immovable physical resources or an association of interconnected assets that fulfills a manufacturing or initiated procedure.
Project Evaluation, therefore, ascribes to the penetrating stages of a project to determine its pragmatism.
Importance of Project Evaluation
Project appraisal targets the awareness of how to construct the project to beat meet its desired standards or ethics.
It magnifies and enlarges eventual dynamism alongside lessons imbibed.
Project valuation drives towards the enhanced height of transmission, deducible backing, network expiation, and lots more.
It involves the appraisal of mensurable and partial knowledge.
Evaluation of these projects entails the committing of cumbersome quantities of funds and valuation on how to originate it.
Most projects before commencing are perceived to be irretrievable, therefore, it needs to be accurately appraised to restrict lapses.
Distinction between Investment, Gambling, Savings and Speculation
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Investment as earlier defined is "pledging one's resources and keeping it for unforeseen opportunities that might occur in the future."
Gambling associates itself with risk-taking and uncertainty. It pertains to involving in a hazardous activity with the aspiration of a favorable outcome.
Savings is keeping away funds from a proportion of your earnings for unforeseen circumstances or to secure it against necessities that might occur.
Speculation is the purchasing of valuables or monetary apparatus with the aspiration that the price will escalate in subsequent times.
Fundamentals of Project Evaluation
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A. Elements of Project Evaluation
- The existence of fathomable principles.
- The presence of substitutes.
- Repression.
- Predicting.
- Decision on selected substitutes.
B. Situations that needs project evaluation
A. Introduction of a New Proposal
When a shareholder deliberates on this proposal, he or she is expected to come to a favorable conclusion. This decision includes buying tangible assets to carry out the project deliberated on.
B. Expansion of a New Project
This involves the decision to broaden the scope of the project into divisions such as office branches or warehouses within the country or state of establishment.
C. Advancement in Mechanisation
The world is in a constant state of change and as such decision-makers see the need to periodically evaluate projects to suit the current state of technology.
D. When tackling Modification Resolution
It concerns the preference to continue using a piece of particular equipment or replace it entirely by selling the old one at a scrap value. Shareholders can also decide to maintain the old machines, and add new ones to increase productivity.
Classification of Projects
It can be classified on different basis such as;
1. Degree of Investment
This looks at the funds invested into the business which is assumed to take care of starting the business till it starts yielding returns.
2. Description of the Proposal
Under this classification, we have two basic categories. It's categorized as a financial or non-financial project based on its degree of returns.
3. The gestation period of the project
The time is taken into consideration to carry out the proposal. It could be a short, medium, or long-term proposal.
4. Relationship with other indistinguishable projects
Here, we have Mutually Exclusive Projects and Dependent Projects. Mutually Exclusive Projects are those projects in which the approval of one terminates the others. Dependent Projects involves taking up two projects that depend on each other.
5. Immanent Dangers
Every project has its own risk associated with it. It's always faced with risks of loss or theft. However, there are risk-reduced projects which are an investment in government securities.
6. The conventionality of the Project
Projects can be conventional or non-conventional which solely lean on the timing and arrangement of the project. For conventional projects, the flow of cash is either in the manner of outflow following a series of inflows and vice versa. For non-conventional projects, the series cash flows are not in an orderly manner.
Project Cycle
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This involves the mishmash of the series of stages involved in the life cycle of a project starting from the structure to the finishing touches.
These stages are:
- Incubation Period
- Comparison Stage
- Acquisition of required data
- Evaluation Stage
- Ranking and Selection
- Implementation Stage
- Monitoring and Control
Facets of Project Evaluation
Market Evaluation
This concerns itself which questions regarding demand and supply and how the supply and distribution chain works in the market.
Technical Evaluation
This analysis seeks to arbitrate if the precondition for the achievement of the project has been fully approved and decided upon.
Financial Evaluation
This analysis investigates if the project will be financially stable to maintain a successful kick-off in other to yield estimated returns.
Economic Evaluation
This concerns itself with deciding on a project from the bigger social and benefits point of view. That is the economy of a country's point of view.
Environmental Evaluation
This analysis is carried out to know whether the environment will pose a threat to the business intended to be established.
Conclusion
Investment in real or financial assets can take various models ways as outright buying new apparatus or office space, opening a new branch within the business environment, and upright or parallel assimilation in the assembling procedure.
Upright in this sense means expansion of the business in terms of branches.
Parallel here means acquiring other minor firms operating in the same line of business as the acquiring firm.
