Investment analysis. Investment analysis methods

For every solid corporation, the main goal will always be to increase income through investment of capital. Before starting to invest, the management needs to determine the financial base of the company, the amount of possible investments, as well as the economic feasibility of participating in the proposed project. Therefore, it is very important to use the collected information correctly and further analyze investment projects to monitor and control the investment management process. This is the only way to achieve a high return on investment.

What is investment analysis

To make it easier to understand the intricacies of investing, you first need to know the basic definition.

So, the complex application of methods and techniques for assessing the economic feasibility of financing any projects that investors rely on to make the right decision is called investment analysis.

The process of such analysis is always dynamic and has two directions: substantive and temporal. Subject carries out an analysis in order to determine the basic investment decisions, taking into account various factors.

These factors include:

• economic environment;
• goals and objectives set for investment;
• environmental Safety;
• the significance and impact of the project on the social infrastructure of the region;
• determination of the presence of financial risks;
• investor plans for financing, organization, marketing, etc.

The above aspects are worked out even in the process of preparing the project itself, and then, during the analysis, they are taken into account for making decisions and making corrective measures.

In the temporary direction, works are considered that start from the moment the idea was born and last throughout the existence of the entire project, because they ensure its continuous development, so that upon its completion, investors receive a profit not lower than the expected level.

Functions

The main functions of investment analysis are:

1. Creation of an authorized organization that will collect information and coordinate the implementation of the goals of the investment project.
2. To make the choice of the most suitable investment systems, the organization makes a decision based on preliminary analyzes, taking into account alternative options and determines the sequence of the necessary measures.
3. Timely identification and solution of problems related to technology, financing, ecology or social sphere that may arise during the implementation of the project.

Tasks

Analysis of investment activity is aimed at finding solutions to the following problems:

• a comprehensive assessment of the necessary conditions for investment;
• justification of prices for the necessary activities and the choice of a source of funding;
• precise definition of external and internal objective and subjective aspects that may lead to negative changes in the results of investment;
• comparison of losses from possible risks acceptable for investors with expected returns;
• mandatory final monitoring of the project to introduce measures that improve the results of further investment.

Goals

The investment analysis of the enterprise sets itself the goal of finding the exact possible result from the implementation of investment projects with the obligatory compilation of a list of all expenses that went into the formation of the project. After all, they play a key role in shaping value.

Investment analysis methods

Now we need to consider in detail how exactly investors increase their capital.

Analysis of investment attractiveness is necessary for corporate executives to provide reliable information about the objects in which they plan to invest. Since there are a huge number of ways to conduct these events, it is better to consider in detail all the options according to their popularity and frequency of use.

If a corporation wants to purchase shares of other companies, then the following investment analysis methods will be used:

1. Analysis of the cost by means of replacement takes into account the capital construction of an object from scratch at current prices, but discounts are applied (most often 10-20%) from the cost of a new one for an approximate calculation of the cost of a currently operating enterprise.
2. A relative analysis of a takeover transaction, when one corporation buys another company, taking into account the book value of assets and the price of shares.
3. Comparative analysis of companies is the process of comparing the economic performance of one company with similar enterprises.
4. The analysis of discount cash flows is a company valuation procedure when they determine the estimated income from the purchase of securities that confirm the ownership of a part of the company.

Retrospective analysis

This type of analysis can be used when the past data of price fluctuations have already been analyzed in order to determine the causes of fluctuations and their consequences for the indicators of the investment project.

Valuation of blocks of shares

Sometimes a situation arises that the shares of the company, which the corporation is going to take over, are not traded on the stock exchange. Then they perform financial investment analysis, or rather, they use the information from the accounting reports of the company of interest and, if possible, the reports of the accounting departments of firms in the same industry, but so that their shares are quoted on the stock market. The indicators of the stock quotes of the above companies are necessarily taken into account.

Factor analysis

To cope with the assigned tasks and achieve the right solution, experts use mathematical algorithms in conjunction with logical thinking and intuition. To make it convenient to conduct an investment analysis of an enterprise and to more easily assess the risks to the value of an investment project, managers draw up a questionnaire that has a universal look.

After careful processing of the information received and solving numerous optimization problems, experts directly identify and assess specific types of financial risks of the project, as well as draw up the necessary list of measures to minimize possible losses and adjust the structure of the investment portfolio.

It was in the process of research in the field of forecasting that most of the methods of expert assessments were developed. The most famous among them are the Delphi method and the method of working with scoring matrices, which are collapsed due to the application of linear weighting factors in each individual variant. However, there is always one main problem that is very difficult to cope with: each of the investment analysis experts speaks out based on their personal experience, so all decisions made are quite subjective.

Similar disadvantages are encountered in the pairwise comparison method. To begin with, they formulate the criteria, and then give them a certain weight of influence on the investment project, so that in the future it is possible to streamline all the important factors of financial risks.