Working curriculum of the course

 

Design cost of annual output according to the first project equals 140 million тг., on the second — 142 million тг. Han's factor = 0,16. Using a formula, it is possible to calculate the given expenses without time factor. According to the first project they make 181,6 million тг. (140 + 0,16 • 260), on the second — 182 million тг. (142 + 0,16 • 250). Therefore, without time factor the first project of a construction of production object is as though more effective. If for calculations to take the capital expenditure given by first year of investment by means of factor of discounting To (see tab. 3.2), it is necessary to give advantage to the second project the given expenses on which make 175,81 million тг. (142 + 0,16 • 211,32) against 177,86 million тг. according to the first project. On the basis of it it is possible to draw such conclusion: the first project can be approved only under condition of improvement of distribution of capital investments on years of a construction of object.

There are certain features of an assessment of efficiency of capital investments at separate stages and the directions investment воспроизводственного a cycle.

In the course of implementation of design and budget works efficiency of capital investments should be defined with their end result — qualities of design decisions. The choice and an economic justification of the best versions of design decisions are made for achievement of appropriate level of efficiency of real investments. According to the realized projects specific capital expenditure for design pays off and the last are compared to standards or analogs taking into account the period of their payback.

At calculations of efficiency of investment of technical re-equipment or reconstruction of the enterprise use additional indicators — conditional liberation of workers and economy of material and fuel and energy resources. If the purpose of technical re-equipment (reconstruction) is improvement of quality of production, the increase in profit of the producer and a consumer demand can be economic result of use of investments. In this case indicators of investment of technical re-equipment (reconstruction) should be compared with similar indicators of efficiency of a construction of the new enterprises.

Calculations of efficiency of investment of new construction or expansion of the operating enterprises need to be carried out with their obligatory comparison with economic productivity of technical re-equipment (reconstruction) of the corresponding production objects. In the course of comparison of indicators of efficiency it is necessary to consider all volume of capital investments, including costs of creation of objects of social infrastructure, and also loss from "freezing" of investments.

Economic efficiency of capital investments in nature protection objects determine by comparison of the reached effect from preservation or improvement of an ecological state of environment and capital expenditure for creation (development) of such objects. At their design the choice of the best technical solution from several possible is carried out taking into account time factor. For definition of full effect from implementation of nature protection actions it is necessary to consider possible improvement of a state of environment on all territory where negative consequences of ecological disruption take place.

The stated technique of determination of efficiency of capital investments gives the chance to select the best projects (options) on the minimum size of the given expenses (prime cost of volume of products plus average annual capital investments within the period of their standard payback) and to determine the overall economic efficiency of the project by a way of calculation of expected (actual) factor of profitability of investment.

However wide application of such technique essentially complicates or at all doesn't give an objective assessment of expediency of capital investments at the developed market relations. This results from the fact that the called technique:

1) is based on an indicator of the given expenses which is artificially designed and really doesn't exist in practice of managing;

2) only partially considers time factor (change of cost of money in time);

3) ignores depreciation charges as a source of means and by that limits cash flows to only net profits;

4) doesn't consider existing in market economy of economic risk and inflation.

Taking into account these judgments there is an imperative need in application of a bit different methodical bases of an assessment of expediency of production investments. They should be relieved of the mistakes inherent in an official technique, and thanks to it are better adapted for the real market relations between subjects of managing.

First of all, it is necessary to understand and interpret unequivocally new (earlier not used) financial and economic terms: initial investments, cash flow, discount rate, present cost of future receipts (income), internal rate of the income, economic risk.

Initial investments (initial cost of the project) — it is real cost of the project of capital investments taking into account results from sale of the operative equipment and taxes. Mathematically they are estimated as the sum of usual expenses for an investment of investments minus all initial income. Initial capital expenditure covers: cost of cars, equipment and other instruments of labor necessary for the enterprise for the real price of purchase (acquisition); the additional expenses connected with transportation and installation of the new equipment, and also with technical supervision of it; taxes on sale of the old equipment if those are provided by the country current legislation. In the conditions of technical reconstruction or expansion of the operating enterprise capital expenditure includes also cost of installation and construction works. At a construction of the new enterprise all expenses which are a part of production investments (capital investments) are considered as the long-term. Due to the investment beginning each action of the enterprise has a certain initial income, i.e. proceeds from sales of the old equipment; tax discounts for sale of the old equipment at a loss; tax privileges for investments, etc.

The cash flow — is the financial indicator characterizing degree of so-called liquidity of the enterprise (firm, the company), that is a measuring instrument of how it is quickly possible to sell its (its) assets and to receive money. This indicator consists of the sum of net profit of the enterprise and non-cash expenses (in particular, depreciation charges). The accounting of amortization as source of financial means is justifiable and important as depreciation charges have a certain log (interval of time) between charge and use to destination.

Estimating expediency of investments, surely establish (count) a rate of discount (capitalization), i.e. the interest rate characterizing, in fact, rate of return, a relative indicator of the minimum expected annual income of the investor. By discount (discount rate) define special factor in which basis of calculation the formula of difficult percent is put and which apply to reduction of investments and cash flows to the look which has compared in time (i.e. for determination of present cost of the last through certain number of years of an investment cycle).

As present cost understand cost of future income estimated by multiplication of a cash flow for every year on a so-called percentage factor of present cost (special factor of reduction) corresponding year on the basis of a certain discount rate. If from a combined value of present cost to subtract initial investments, we will have the indicator of the net present value used in one of the most widespread methods of an assessment of expediency of capital investments in the countries with developed market economy.

The internal rate of the income on size is equal to a discount rate at which present cost of cash flows and initial investments are approximately identical. In other words, the internal rate of the income — is a discount rate at which net present value of cash flows equals to zero. This indicator can be used rather widely in practice of managing of the enterprises for an assessment of efficiency of capital investments. The settlement indicator of an internal rate of the income should be not below a limiting (necessary) rate which the enterprises (firms, the companies) establish, proceeding from cost of financing and riskiness of the project of capital expenditure.

The economic risk usually means uncertainty and instability of guaranteeing and obtaining the expected income of capital investments. An assessment of expediency of investments — it almost always an assessment of projects (alternative options) with risk. Future income of implementation of this or that project of capital investments can unexpectedly decrease or increase. There are many factors causing reduction of expected cash flows of the enterprise: loss by the enterprise of all positions in foreign or domestic market; increase in prime cost of products (services); growth of cost of financing; more rigid requirements to protection of environment, etc.

The basic methodical provisions concerning determination of expediency of investments of this or that subject of managing, are reflected in the coordinated system of calculations and logic actions which are carried out step by step, in a certain sequence.

First stage: calculation of initial investments with use of initial figures on all elements which are a part of initial capital expenditure and the initial income of the enterprise.

Second stage: definition of expected (possible) and safe cash flows for every year of the settlement period, considering all types of income of the enterprise, the sum of depreciation charges and factors of an equivalent of the confidence which absolute value every next year decreases.

Third stage: establishment of present cost of future cash flows with use of a percentage factor (factor of reduction of a), estimated on a formula (3.2) where means a rate of discount (capitalization).

Fourth stage: calculation of net present value (ChNS) of cash flows and an assessment on a method of application of ChNS of expediency of investments taking into account the market and inflation, and (or) definition internally rates of the income (VSD), at which ChNS equals to zero, and making decision on expediency of capital investments on a VSD method.

Let's give an example determination of expediency of capital investments (data conditional). Basic data and sequence of calculations of the corresponding indicators for an assessment of efficiency of investments of the conditional subject of managing are given in tab. 3.3.

Table 3.3 – Basic data and sequence of calculations of indicators for an assessment of expediency of capital investments

indicators	Год					Всего
	1-й	2-й	3-й	4-й	5-й
A. The initial investment thousand tenge.	—	—	—	—	—	15300
Two. Expected (possible) cash flows, thousands of mr.	7000	6000	5000	4000	3000	25000
3.Factors certainty equivalent, ed.	0,95	0,80	0,70	0,60	0,40	—
4. Secure cash flow, thousand tenge. (Page 2 × p 3)	6650	4800	3500	2400	1200	18550
5.Discount rate,%	—	—	—	—	—	12; 14
6.Annual inflation,%	—	—	—	—	—	5
7. The real discount rate (p 5 p. 6)	—	—	—	—	—	7; 9
8.Interest factor in the present value (expressed as a decimal) for the real discount rate
а) 7%	0,935	0,873	0,816	0,763	0,713	—
б) 9%	0,917	0,840	0,769	0,709	0,649	—
9. The present value of cash flows, thousands of mr.
а) стр. 4 х стр. 8 а	6218	4190	2856	1831	856	15951
б) стр. 4 х стр.  8 б	6098	4032	2692	1702	779	15303
10. The net present value, thousands of n (p-9 and p. 1)	—	—	—	—	—	651
11. Marginal rate of income,%	—	—	—	—	—	13
12. The estimated internal rate of return,%	—	—	—	—	—	14

 

Calculations show that net present value of this project makes 651 thousand тг. (see p. of 10 tab. 3.3). It means that the estimated project of capital investments is accepted as the indicator of ChMS has positive absolute value and testifies to profitability of investments in general.

Along with it the enterprise (investor) almost always wants to know level of profitability of the project of capital investments. In this regard (in addition or in parallel) it is necessary to define expected level of VSD, at which ChNS = 0. By the calculations given in tab. 3.3, it should be clear that this condition is satisfied when the discount rate will be lifted with 12 to 14 %, that is, than its real size is established more. 14 % also are real internally a rate of the income of the enterprise which exceeds a limiting rate (13 %) and more precisely estimates expediency of investment.

Features of an assessment of efficiency of release and implementation of securities. In the course of an assessment of efficiency of use of securities in domestic system of managing it is usually necessary to consider: the current (operational) expenses connected with the organization of release, placement and the circulation of securities; par and market value of unit of a certain type of securities; total amount of an emitirovaniye of securities, their part in total of financial resources of the enterprise (organization) and other subjects of managing; absolute (relative) income of issuers and owners of these or those types of securities. The accounting of the mentioned indicators defines features of an assessment of efficiency of release, placement and the circulation of securities on domestic and international share the markets.

In total amount of a turn of securities in Ukraine the greatest part by quantity and cost is made by various actions of the enterprises (organizations). Therefore issuers and owners pay to the correct assessment of efficiency of this type of securities the greatest attention. The common system of the main indicators of efficiency of release and use of actions which reflects certain features of their analytical assessment, is shown on fig. 3.6.

The capitalized stock value defines a market share cost of joint-stock company, i.e.

,

Where — number of the emitted stocks;

— market cost of one action.

Balance cost of one action is accounting confirmation of security of each emitted action by the capital of joint-stock company. It pays off with the help of a formula

,

Where — balance cost of the share capital;

— size of insurance (reserve) fund.

 

Fig. 3.6. Main indicators of an assessment of efficiency of release and circulation of stocks

Ratio of a market and balance stock value — it is the generalizing indicator testifying to success (failure) of joint-stock company, i.e.

Profit on an action gives the chance to estimate size of the income directed on consumption and accumulation, falling on one action. For its calculation the formula is used

Where — sum of net profit;

— сmind of percent for use by debt funds.

Dividend return of actions characterizes the size of the income directed on the current consumption of shareholders, i.e. payment of dividends counting on one action at market cost:

Where d — the size of the added dividend in national currency.

Factor of security of preference shares allows to estimate security of preference shares pure assets of the issuer and consequently, and to calculate degree of security of the capital of the investor. Its size estimate on a formula

,

Where — сtoimost of net assets of the issuer (joint-stock company);

— number of the emitted preference shares.

Factor of liquidity of actions characterizes real possibility of sale (placement) of actions of this or that issuer (joint-stock company). It count as a ratio of total amount of the offer of actions and real volume of sale of shares , т. е.

,

Factor “offers — demand”  — it ratios of the prices of supply and demand on an action; it is estimated on a formula

,

Where and — respectively price of the offer of actions and demand for them.

Factor of the circulation of stocks allows to define volume of the circulation of stocks of the specific issuer and is a version of an indicator of liquidity. He can be calculated, using a formula

,

Except the listed indicators, economic efficiency of use of the stocks issued by the issuer, relative volumes of growth of sale of production and the received net profit in relation to operational costs of release and placement of all types of actions for a certain period indirectly can characterize. Besides, the enterprises of an action emitted and acquired by workers serve as good incentive motive to improvement of quality of work as the size of periodically charged dividends on an action directly depends on total amount of net profit.

Some indicators characterize efficiency of release and acquisition of bonds of the enterprises and other subjects of managing: 1) the direct income on the bond; 2) conversion award; 3) factor of conversion.

1. The direct income on the bond defines dependence of relative size of the income on the bond from interest rate and market cost of the bond. This indicator is estimated on a formula

,

Where — interest rate of the direct income on the bond;

, — respectively par and market value of the bond.

2. Conversion award characterizes size of benefit (losses) of the investor from conversion of bonds in an action and it is estimated on a formula

,

Where — market stock value at the moment of issue of conversion bonds;

— the conversion price, i.e. the price on which the bond can be converted in an action.

3. Factor of conversion shows number of stocks which can be received in exchange for the converted bond. For its calculation the formula is used

,

Where — par value of the converted bond.

At determination of efficiency of release (realization) and use in system of managing of other types of securities (exchequer obligations, savings certificates, bills, privatization property certificates) almost same methodical bases are applied, i.e. operational expenses (prices) and total results for issuers and owners are compared. As the main indicator of level of efficiency of such securities the financial income of their owners in the form of a certain annual percent from total amount of brought (deposited) own money or material values according to RK current legislation serves.

Questions for self-examination

1. Value of a temporary factor in an assessment of investments

          2. The indicators used at an assessment of investments

          3. Technique of an assessment of efficiency of investments

Literature

1. Ershov V. F. Business design: Application guide / Century F.Ershov. - SPb.: St. Petersburg, 2005. - 288 pages.

2. Small business program. Management in small business. Business plan. - M: "DECK" IKK, 1993. - 59 pages.

3. Small business program. Management in small business: How to make financial decisions. - M: "DECK" IKK, 1993. - 70 pages.

4. Small business program. Management in small business: Budget drawing up. - M: "DECK" IKK, 1993. - 79 pages.

5. Ushakov I.I. Business plan / I.I.Ushakov. - SPb.: St. Petersburg, 2008. - 224 pages - (Practice of management)

6. Financial analysis and planning [Electronic resource]: A training course. - Electron. applied прогр. (520 Mb). - M: Kordis & Media, 2005. - 1 эл. wholesale. disk (CD ROM): зв. -

 

 

 Subject 5 branch Description

Lecture purpose –  to study the business plan section the branch Description

1. Sales market assessment.

2. Concept about market segmentation.

3. Assessment of capacity of a market segment.

Content of lecture

This section is, as a rule, devoted to research and the analysis of the market, the competition on it etc. First of all market researches are directed on identification of today's consumers of production, services and definition of the potential. Priorities by which the consumer is guided upon purchase, – quality, the price, time and accuracy of delivery, reliability of deliveries, service, etc. are defined.