Before making any major business investments, you need to calculate their possible effectiveness. Without this data, the likelihood of large amounts of money being wasted increases. capital investment?
Instructions
Step 1
Measure the effectiveness of capital investments at all stages of planning. When designing any objects, the efficiency of capital investments is determined by two digital indicators (coefficients) - the total and comparative economic efficiency of capital investments. At the same time, the overall economic efficiency, as a rule, is a relative value - the ratio of the effect to the costs required to obtain it.
Step 2
Calculate the payback period for future capital investments together with the cost-effectiveness ratio.
Step 3
The definition of investment efficiency is determined using the following formula: E = P / C, where E is the efficiency of investments, and P is the profit for the expected period (quarter, year, five years, longer term). K is your capital investment in the construction and development of this enterprise that has begun.
Step 4
If you are calculating a large investment in manufacturing, complicate the formula a little. It has the following form: E = (C - C) / K, where E is the efficiency of the enterprise, C is the price of the annual output of goods (excluding taxes), C is the cost of goods produced.
Step 5
For the calculation in the field of trade, the formula takes the form: E = (N - I) / K. H is the sum of trade markups, and the letter I is the total cost of circulation.
Step 6
Calculate the payback period for your capital investment. It is calculated as a result of the ratio of the volume of capital investment to profit according to several formulas: T = K / P (general formula), T = K / (P - S) (in the field of production) and T = K / (N - I) (in the field of trade).
Step 7
Compare the results of calculating the effectiveness with the standard indicators of possible effectiveness or exactly the same indicators for an earlier period. Capital investments can be considered cost-effective if, as a result of calculations, the obtained results of measurements of the overall efficiency are not lower than the norm.
