Assessing the effectiveness of an enterprise's investment activities. Investment activity of an enterprise and assessment of its economic efficiency using the example of BHS LLP Methods for assessing the effectiveness of an enterprise's investment activity
One of the most important areas economic activity An enterprise is its investment activities related to the investment of funds in the implementation of long-term and medium-term projects.
Investment activity can be defined as a set of operations for the acquisition and sale of long-term (non-current) assets, as well as short-term (current) financial investments that are not equivalent to cash.
An enterprise can make investments of various types and in various organizational forms: formation investment portfolio, participation in investment projects, etc. The areas of investment activity of an enterprise have a different nature, degree of responsibility and, accordingly, the nature of the consequences and level of risk.
The main directions of investment activity of the enterprise are:
· renewal and development of the material and technical base of the enterprise or expanded production of fixed assets of the enterprise;
· increasing the volume of production activities;
· development of new types of activities.
The process of making management decisions of an investment nature is based on the assessment and comparison of the volume of proposed investments and future cash receipts, i.e. it is required to somehow compare the amount of investment with projected income based on the use of various formalized and informal methods and criteria.
This requires deep investment analysis in areas:
· retrospective analysis of financial and economic activities in order to determine the weakest points in the activities of various divisions of the enterprise;
· justification and comprehensive analysis of the investment business project;
· feasibility study of a loan, other types of external financial resources if they are involved;
· assessment of the influence of external and internal factors on the overall effectiveness of the project.
The financial analysis investment projects the most important component of the strategy of any business entity. Its implementation allows you to make informed decisions on the feasibility investment investments and the profitability of their activities.
The main indicators for assessing the effectiveness of an investment project are:
Net present value (NPV);
Profitability Index (PI);
Internal rate of return (IRR,%);
The payback period of the initial costs, calculated taking into account discounted cash flows (T).
The net present value method is based on a comparison of the discounted value of cash receipts (investments) generated by the enterprise during the forecast period. The purpose of this method is to identify the real amount of profit that can be received by the organization as a result of the implementation of this investment project.
Net present value is quantified in the following ways:
where: CF - cash flows by year
I - volume of investment
i - discount rate
n - number of periods (years)
This model assumes the following conditions:
The volume of investment is accepted as completed;
The volume of investment is taken into account at the time of analysis;
The return process begins after the investment is completed.
The discount rate r can be used:
· - bank lending rate;
· - weighted average cost of capital;
· - opportunity cost of capital;
· - internal rate of return.
If the analysis is carried out before the start of investment or the investment is planned for several years, then the amount of investment expenses should also be brought to the present moment. The model for calculating net present value will take the form:
The indicator reflects the forecast assessment of changes in economic potential commercial organization if the project under consideration is accepted.
If NPV>0, then the project is profitable, increasing the actual cost of the organization by the NPV amount.
If NPV<0, то проект является убыточным и должен быть отвергнут.
If NPV = 0, then the project is neither profitable nor unprofitable, that is, from an economic point of view, it is indifferent whether to accept this project or not; if the projects are alternative, then the project with the higher net present value is accepted.
The key to calculating net present value, as with other discount valuation methods, is the choice of discount rate. The discount rate is chosen by the developer independently. In this case, one should take into account the size of risk-free rates, the projected inflation rate for the period, the rate of opportunity costs, uncertainty and risk when planning distant cash receipts, etc. The rationale for choosing a discount rate in each case is individual and depends on the conditions and goals of the analysis, as well as on analyst qualifications.
The investment return index is the income per unit of invested funds. It is defined as the ratio of the current value of the cash flow of income to the current value of investment costs and is calculated by the formula:
Unlike net present value, the profitability index is a relative indicator: it characterizes the level of income per unit of cost, i.e., the efficiency of investments - the higher the value of this indicator, the higher the return on each ruble invested in a given project. Thanks to this, the PI criterion is very convenient when choosing one project from a number of alternative ones that have similar NPV values (in particular, if two projects have the same NPV values, but different volumes of required investments, then it is obvious that the one that provides greater investment efficiency is more profitable ), or when completing an investment portfolio in order to maximize the total NPV value.
The higher the profitability indicator, the more preferable the project. If the index is 1 or lower, then the project hardly meets or even does not meet the minimum rate of return (in practice, an index close to one is acceptable in some cases). An index of 1 corresponds to zero net present value.
The internal rate of return on investments is the rate of return (barrier rate, discount rate) at which the net present value of the investment is zero, or the discount rate at which the discounted income from the project is equal to investment costs.
Its value is found from the following equation:
That is, the internal rate of return is the rate of return that, when applied to the earnings from an investment over its life cycle, results in a net present value of zero.
In particular, the economic meaning of the IRR criterion is that an enterprise can make any investment decisions, the profitability of which is not lower than the current value of the “cost of capital” (CC) indicator. The latter means the entire totality of the costs of the available sources of financing for the project.
Making a decision on an investment project based on the IRR criterion is based on the rule: if the IRR value is greater than the project financing rate, then this project should be accepted, and vice versa.
The discounted payback period is the period of time required to recover the discounted cost of an investment from the present value of future cash flows. This indicator is determined by dividing the investment by the discounted net cash flow.
When evaluating investment projects, criteria T can be used under the following conditions:
a) the project is accepted if payback occurs;
b) if the calculated payback period is less than a certain maximum allowable payback period that the company considers acceptable for itself, then the project is accepted;
c) from a number of alternative investment projects, the one whose payback period is shorter is accepted.
In contrast to the NPV, IRR and PI criteria, the T criterion allows us to obtain estimates, albeit approximate ones, of the liquidity and riskiness of the project.
When analyzing investment projects, you should adhere to the following rules:
1. When comparing projects, consistently apply the same quantitative approaches to them.
2. Use quantitative assessment methods as useful, but not the only information for decision making.
3. Do not exclude any assumptions made in the analysis and interpret the meaning of the results obtained.
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Main goal management of capital investments at enterprises is to ensure the planned increase in tangible and intangible assets in their specific types.
The process of managing capital investments of an enterprise is carried out in the context of the following main stages:
| The main stages of managing capital investments in an enterprise | 1. Analysis of the degree of development and efficiency of capital investments in the pre-planning period | |
| 2. Determination of forms of capital investment | ||
| 3. Drawing up a capital investment plan | ||
| 4. Evaluating the effectiveness of individual investment projects | ||
| 5. Formation of a portfolio of capital investments | ||
| 6. Ensuring the implementation of individual investment projects and investment programs | ||
| 7. Development of business plans for investment projects |
Rice. 4.11. Contents of the main stages of the capital investment management process at an enterprise
1. Analysis of the degree of development and efficiency of capital investments in the pre-planning period. In the process of this analysis, the level of investment activity of the enterprise in the pre-planning period and the degree of completion of previously started investment projects and programs are considered.
At the first stage analysis examines the total volume of capital investment in the growth of fixed assets and intangible assets, the share capital investments in the total volume of investments of the enterprise in the pre-planning period.
At the second stage of the analysis, the degree of implementation of individual investment projects and programs, the level of development of investment resources provided for these purposes, in the context of capital investment objects are considered.
At the third stage of the analysis, the degree of completion of previously started capital investment projects is determined, and the required amount of investment resources for their full completion is specified.
2. Determination of forms of capital investment. Forms of capital investments are determined in the context of the main types of investment operations in accordance with the enterprise development strategy.
There are forms of simple and expanded reproduction of fixed assets.
To forms simple reproduction include: repair, modernization, replacement of existing labor equipment.
|
Rice. 4.12 – Forms of simple reproduction
To forms expanded reproduction include: technical re-equipment of an existing enterprise, reconstruction, expansion of an existing enterprise, new construction, acquisition of entire property complexes.
Rice. 4.13 – Forms of expanded reproduction
Technical re-equipment- this is a set of measures to improve the technical and economic level of existing enterprises or individual sites based on the introduction of new equipment without expansion.
Expansion of existing enterprises involves increasing their capacity through extensions to existing enterprises.
Acquisition of complete property complexes is an investment operation of large enterprises that ensures production, commodity or regional diversification of their activities. In connection with the ongoing privatization process, as well as the bankruptcy of individual enterprises, the acquisition of entire property complexes is becoming increasingly developed;
New construction- an investment operation associated with the construction of a new facility with a completed technological cycle according to a specially developed or standard project in specially designated areas. Enterprises resort to new construction when there is a dramatic increase in the volume of their activities in the coming period, its production, product or regional diversification (the creation of branches, subsidiaries, etc.);
Reconstruction- an investment operation associated with a significant transformation of production or trade and technological processes based on modern scientific and technical achievements. It is carried out in accordance with a comprehensive plan for the reconstruction of the enterprise in order to increase its production capacity, throughput, introduce resource-saving technologies, improve product quality, increase the level of trade customer service, etc. During the reconstruction process, the expansion of individual retail and non-trade buildings and premises may be carried out (if new technological equipment cannot be placed in existing premises); construction of new buildings and structures of the same purpose to replace those liquidated on the territory of an existing enterprise, the further operation of which for technical or economic reasons is considered inappropriate;
Modernization- represents an investment operation related to the improvement and bringing the active part of fixed production assets into a state corresponding to the modern level of production, trade and technological processes through constructive changes to the entire fleet of equipment, machines and mechanisms used by the enterprise;
Acquisition of certain types of tangible or intangible assets. This investment operation is associated with the renewal (due to physical wear and tear) or increase (due to growth in the volume of activity) of certain types of tangible assets; the acquisition of new software products that will ensure an increase in the efficiency of the enterprise in the coming period.
3. Drawing up a capital investment plan.
The capital investment plan includes four sections, of which the first three are the main sections:
1. Volume, structure and sources of financing capital investments.
2. Plan for commissioning fixed assets and intangible assets.
3. Plan for commissioning production capacities.
4. Plan of design and survey work.
Capital investments include the cost of:
All types of construction work;
Equipment;
Costs for installation and transportation of equipment;
Costs for reconstruction of buildings and structures;
Additional costs for technical equipment of adjacent areas caused by the introduction of new equipment.
The cost of construction work (CIz) is determined taking into account the area or volume of the workshop buildings (S) and specific capital costs per 1 m 2 or per 1 m 3 (m)
KIZ = S ּ m,
The cost of equipment is determined by free, market wholesale selling prices (Ts oo) in force at the time of calculation, to which reference is made, which indicates the specific date of validity of the prices used in the calculations.
The cost of installation and transportation of equipment is determined by the cost rate (N tr), which is set as a percentage of the wholesale selling price and depends on the complexity of installation of the equipment being designed.
The cost of equipment, taking into account the costs of its transportation and installation, is called book value of equipment(F b) and is determined by the formula:
F b = C o +
The costs of reconstruction of the building (KVR.z) are determined taking into account the volume for each type of construction work based on the estimate.
All sources of financing capital investments are divided into
centralized
decentralized.
Centralized capital investments are established in accordance with the state economic policy program.
Decentralized capital investments are made beyond government programs if funds are available for this.
Main sources of decentralized capital investments are:
- own financial resources(depreciation deductions; deductions from net profit; proceeds from the sale of excess property included in fixed assets; mobilization of internal financial resources (for example, amounts paid by insurance authorities in the form of compensation for damage incurred); savings from lower prices for equipment, lower costs construction and installation works).
- involved funds(funds from the sale of shares; charitable and other contributions; funds allocated by higher holding and joint-stock companies, industrial and financial groups on a free basis; allocations from state, regional and local budgets, business support funds, provided free of charge; foreign investments provided in the form of financial or other participation in the authorized capital of joint ventures; direct investments of international organizations and financial institutions, enterprises and organizations, individuals);
- borrowed funds(bank loans, bonded loans, bills).
Centralized capital investments are financed by:
Due to allocations from the state budget;
Centralized funds of governing bodies;
Own funds of enterprises;
Bank loans.
The share of budget allocation is currently decreasing due to budget deficit. A share own funds enterprises increases in the total volume of capital investments.
4. Assessing the effectiveness of individual investment projects.
The effectiveness of capital investments is characterized by the economic (or social) results of their implementation. The feasibility of capital investments is determined as a result of a thorough assessment of their effectiveness. This takes into account that with a limited amount of capital as a resource, it is necessary to obtain maximum profit. The official methodology for determining the effectiveness of capital investments is based on general provisions, the main ones of which are the following:
Firstly, calculation economic efficiency capital investments are carried out in the following three cases:
a) when developing various design and planning documents;
b) when determining the optimal ratio of capital costs according to the forms of reproduction of fixed assets;
c) when assessing the effectiveness of using your own financial resources enterprises.
Secondly, when performing calculations, the overall economic efficiency is determined as the ratio of the effect (result) to the amount of capital costs. Costs and results are determined taking into account the time factor, i.e. are discounted.
At enterprises, the most important indicator of the effectiveness of capital investments is profit growth.
Third, In order to comprehensively substantiate and analyze the economic efficiency of capital investments and identify reserves for increasing it, a system of indicators is used - general and specific.
TO summary indicators include: net present value; profitability index (coefficient); investment payback period; internal rate of return.
TO private indicators include: labor productivity, capital productivity, material intensity, energy intensity, cost and technical level of products, duration of the investment cycle, the magnitude of the social effect, indicators that characterize environmental improvement.
Fourthly, When determining the effectiveness of capital investments, the influence of so-called non-investment factors must be taken into account, i.e. the action of factors that do not require additional investment. This means that from the total amount of the effect, one should highlight the effect obtained as a result of an increase in the shift ratio, the use of progressive standards for the organization of production, labor, management, etc.
To assess the effectiveness of capital investments and calculate the above indicators, you need to know specific terms (Table 4.3).
Payback period allows you to evaluate not only the effectiveness of investments, but also the level of investment risks. Since the longer the period of project implementation until its full payback, the higher the level of investment risks. However, the indicator “payback period” of investments does not take into account those cash flows that are formed after the payback period of investment funds invested in the project. This is especially important for projects with long service life.
Table 4.3
Indicators for assessing the effectiveness of investment potential
| Index | Economic content | Calculation formula |
| Initial Investment (IP) | this is the real cost of the investment project, taking into account the results from the sale of existing equipment and taxes | |
| Initial income (IP) | this is income from the sale of old equipment, tax breaks on investments, etc. | |
| Cash Flow (CF) | a financial indicator that characterizes the degree of liquidity of the project; it consists of net profit and depreciation charges. | |
| Discounting | an operation to take into account the time factor when making decisions. Its meaning is to assess costs, revenues, profits and economic profitability, taking into account temporary changes. | |
| Discount rate (r) | this is an interest rate that characterizes the rate of return taking into account bringing investments and cash flows for different periods into a comparable form. It depends on the level of risk and liquidity. Using the discount, the reduction coefficient (Kp) is determined, which is based on the compound interest formula. | Кп = (1 + r) n, where n is the number of years. |
| Present cost of the investment project (NS) | This is the value of future earnings in today's terms. The higher the rate of return and the more distant the period of receipt of income, the lower the present value of a sum of money. | , where BC is the future cost of the investment project. |
| Net present value (NPV) | represents the difference between the amount of cash flow (CFF) reduced to the present value (by discounting) for the period of operation of the investment project and the amount of funds invested in its implementation (initial investments). | NPD = DPns - PIns. If the project does not involve a one-time investment, but sequential investment over m years, then the formula for calculating the NPV takes the following form: NPV = k - predicted inflation rate. PIns – initial investment at present value |
| Yield Index (YI) | represents the ratio of the cash flow, reduced in the process of project evaluation to the present value (DPns), to the initial investments in the project (and, if investments are different in time, also reduced to the present value) (PI) | The “profitability index” indicator can also be used not only for the comparative assessment of investment projects, but also as a criterion. If ID > 1, the project should be accepted; if ID £ 1, then the project should be rejected due to the fact that it will not bring additional income to the investor. |
| Rate of return on investment” (Nd) | Characterizes cash flow, which will be received for each hryvnia of invested funds annually | ; DP NS – cash flow in present value |
| Payback period (PO) | shows over what period the investor will return the funds invested in the project. When calculating it, the values of the initial investment and cash flow reduced to present value are also used. | ; DPns avg - the average amount of cash flow in the period (annual average, quarterly average, monthly average). |
| Internal rate of return (IRR) | reflects the discount rate at which real value cash flows and initial investments are of the same size | IRR = - 1, where n is the number of years for which the value is discounted. |
The enterprise is carried out to solve the following series of problems.
First of all, the need for implementation is assessed, their feasibility and scale are assessed. Then the possibility of their implementation is assessed, their profitability is predicted and possible ones are analyzed.
At the next stage investment activity analysis implies the construction of an enterprise, the most acceptable and suitable areas of investment are selected, and a general organization is formed.
Next in the process investment activity analysis the company tries to identify all factors that could negatively affect the achievement of investment goals. All sorts of factors are considered, whether objective or subjective, internal, external, etc.
At the final stage, there is an economic justification for the investment decisions that the enterprise has chosen for their implementation. It is worth noting that such decisions should be identical to the overall economic strategy of the enterprise and should improve and strengthen the competitive advantages of the organization and positively influence the pace and dynamics of its development.
Usually, investment activities has two directions or two forms. These are direct investments of the enterprise (capital investments) and financial or portfolio investments. In this regard, the following tasks of each form are identified.
Enterprise analysis tasks:
- identifying the organization's need for long-term direct investment
- search and economic justification of the necessary sources of investment and assessment of the cost of capital
- analysis of all external and internal factors that can affect the achievement of investment goals. Forecasting results from implementation investment ideas
- development of management and other types of decisions to reduce the risk of investments and increase their returns
- control over the conduct and implementation of investment activities and development of recommendations for its improvement.
Objectives of enterprise analysis:
- implementation of a whole range of measures to analyze and evaluate all available economic and political information on the implementation of financial investment activities
- creation of a body responsible for monitoring market changes valuable papers and loan capital on an ongoing basis
- analysis of the current and forecasting of the future financial stability investment object
- determining an acceptable level of return to risk ratio of financial investments for an enterprise
- compilation and optimization of the enterprise's investment portfolio and analysis of its level of efficiency.
It is worth understanding that the implementation of direct and financial investments are two parts of one investment process and the similarity in their planning and implementation unites these investments into the overall investment activity of the enterprise.
Analysis of the effectiveness of investment activities
There are the following groups of indicators.
Economic group analysis of the effectiveness of investment activities. The indicators of this group vary according to
- level of investor goals
- budget efficiency. Indicators in this category show the level of financial consequences for the budget of any level (federal, regional, local, etc.). These indicators are calculated based on the ratio of budget revenues to its expenses
- commercial efficiency. At its core, commercial effectiveness is financial consequences from the implementation of investment activities or sales investment projects For economic entity. The level of commercial efficiency is determined by the difference between the receipt and expenditure of funds as a result of investment activities
- national economic efficiency. Indicators in this category are calculated based on the size of direct, associated, associated and other investment costs.
- purpose of using these indicators
- the nature and timing of cost-benefit accounting. This group includes indicators of various kinds, namely: economic, financial, social, environmental, and resource consequences of investment activities.
Thus we see that analysis of the effectiveness of investment activities determined by various factors, namely its social and environmental consequences, as well as financial, economic and production results.
To make it easier to study the material, we divide the article into topics:
A key factor in calculating budgetary efficiency is determining net present value. The basis for its determination is the amount of budget receipts (including repayment of loans and interest on them, taxes, on shares owned by the region) and budget expenditures (including grants, loans and subsidies, expenses for the acquisition of shares).
The purposes for which investment projects are assessed:
Search for investors;
Selection of the most effective investment or lending conditions;
Selection of risk conditions;
Preparation of an investment project.
The company “Active Business Consultations”, as a result of its work in assessing investment projects, provides you with a prepared investment project, consisting of an assessment of the feasibility and effectiveness of the investment project, comparison of various options for the direction of development of the investment project. The compiled report will contain all the necessary information so that you understand the riskiness, or, conversely, the justification of investing in the project in question. This way, you have information in your hands with which you can manage your funds in an informed manner.
Investment efficiency assessment
Making decisions related to investments is an important stage in the activities of any enterprise. To effectively use raised funds and obtain maximum return on invested capital, a thorough analysis of future income and costs associated with the implementation of the investment project under consideration is necessary.The task of the financial manager is to select such projects and ways of their implementation that will provide a cash flow that is maximum compared to the cost of the required capital investment.
There are several methods for assessing the attractiveness of an investment project and, accordingly, several key performance indicators. Each method is based on the same principle: as a result of the implementation of the project, the enterprise should make a profit (the enterprise should increase), while various financial indicators characterize the project from different angles and may meet the interests of various groups of persons related to this enterprise - creditors, investors, managers.
When assessing the effectiveness of investment projects, the following main indicators are used:
Payback period - PP (Payback Period)
Net Present Value – NPV (Net Present Value)
Internal rate of return –IRR (Internal Rate of Return)
Modified internal rate of return - MIRR (Modified Internal Rate of Return)
investment – P (Profitability)
Profitability Index – PI (Profitability Index)
Each indicator is at the same time a decision-making criterion when choosing the most attractive project from several possible ones.
The calculation of these indicators is based on discount methods that take into account the principle of the time value of money. In most cases, the weighted average WACC is chosen as the rate, which, if necessary, can be adjusted to indicators of the possible risk associated with the implementation of a specific project and the expected level of inflation.
If the calculation of the WACC indicator is associated with difficulties that raise doubts about the reliability of the result obtained (for example, when estimating equity capital), you can choose the average market return adjusted for the risk of the analyzed project as the discount rate. Sometimes the rate is used as a discount rate.
The main stages of assessing the effectiveness of investments:
1. Assessment of the financial capabilities of the enterprise.
2. Forecasting future cash flow.
3. Choice of discount rate.
4. Calculation of key performance indicators.
5. Taking into account risk factors.
Methods for evaluating investment projects
– a complex and multifaceted concept, which lies in the advisability of investing in a given organization. There are a number of aspects of the organization’s investment attractiveness: technical; commercial; ecological; institutional; social; financial. All the considered aspects of the investment attractiveness of the organization are interconnected, therefore, in the process of investment of the enterprise, individual aspects must be optimized among themselves for the effective implementation of its main goal - ensuring the financial balance of the enterprise, which is in crisis in the process of implementation.This balance is characterized by a high level of financial stability and solvency of the enterprise at all stages of its development. It is one of the most important conditions for an enterprise to carry out effective investment activities. This is due to a shortage of financial resources in the context of the financial recovery of the organization. Therefore, when carrying out investment activities in all its aspects, an enterprise must predict in advance what impact it will have on the level of financial stability and solvency of the enterprise, as well as optimize for these purposes the structure of invested capital and investment cash flows. To this end, we will formulate a strategy for investment attractiveness in conditions of financial recovery.
Strategic investment management of an enterprise covers the following main stages:
1. Determining the investment opportunity of the enterprise and the feasibility of investing funds. For this purpose, it is necessary to first study the total volume of investment activity of the enterprise for previous years. Based on the information received, it is necessary to determine the so-called possible future at the moment. At the next stage, it makes sense to determine the feasibility study of the investment. As a rule, for enterprises in a pre-crisis and crisis state, the most typical investments are those associated with a possible reduction in current costs, improvement of the technological process and the product itself, as they are most likely to provide a quick effect and generally do not require large-scale costs. In some cases, investments also satisfy these conditions into new products and markets. Investment projects of this group require the most careful study, including not only technical and financial expertise, but also socio-economic, institutional, legal assessment, and in-depth marketing analysis.
2. Study of the conditions of the external investment environment. In the process of such research, the legal conditions of investment activity are studied in general and in the context of individual forms of investment (“investment climate”); the current investment market and the factors that determine it are analyzed; the nearest conditions of the investment market are predicted in the context of its individual segments related to the activities of the enterprise.
Selective investment risk is the probability of choosing a less attractive investment object than was possible.
Project sensitivity analysis involves determining changes in variable project performance indicators as a result of fluctuations in initial data. With this approach, each project performance indicator is sequentially recalculated when any one variable changes.
Analysis of project development scenarios involves assessing the impact of simultaneous changes in all main project parameters on project performance indicators. This type of analysis uses special computer programs, software products and simulation models. Three scenarios are usually considered: pessimistic; optimistic; most likely (average).
In the case when precise estimates of parameters cannot be specified, and analysts can only determine the intervals of possible fluctuations of the indicator, the Monte Carlo simulation method is used. It creates an additional capability in risk assessment by allowing the creation of random scenarios. The application of risk analysis uses a wealth of information, whether in the form of objective data or expert judgment, to quantify the uncertainty that exists in relation to key project variables and to make reasonable estimates of the likely impact of uncertainty on the performance of the investment project. The result of a risk analysis is not expressed as a single value, but as a probability.
For the most reliable analysis of the situation associated with risk situations, the best option would be to use as many risk assessment methods as possible due to the fact that various risk assessment techniques complement each other and adjust each other’s values.
Criteria for evaluating investment projects
Any project is linked to cash flow - the receipt of cash and cash equivalents, as well as payments for the implementation of individual entrepreneurs, determined for the entire billing period. Investment activities at the enterprise as a whole lead to an outflow of funds. Operating activities are the main source of payback and generate the main cash flow. The financial feasibility of an individual entrepreneur is characterized by a positive balance of cash flows at each step of the implementation of this project.A flow is said to be single if it consists of an initial investment made at one time or over successive base periods and subsequent cash inflows (inflows follow outflows); if inflows of funds alternate in any sequence with their outflows, the flow is called extraordinary. The identification of ordinary and extraordinary flows is extremely important when choosing one or another evaluation criterion, since not all criteria cope with the situation when it is necessary to analyze projects with extraordinary cash flows.
When analyzing IP, certain assumptions are made. Firstly, it is customary to associate a cash flow with each investment project. Most often, the analysis is carried out by year. It is assumed that all investments are made at the end of the year preceding the first year of the project, although in principle they could be made over a number of subsequent years. The inflow (outflow) of funds refers to the end of the next year.
It must be especially emphasized that the use of methods for assessing and analyzing projects involves a multiplicity of forecast estimates and calculations used. Plurality is determined by both the possibility of applying a number of criteria and the unconditional advisability of varying the basic parameters. This is achieved by using simulation models in a spreadsheet environment.
4.1. decisions aimed at forming strategic alliances (syndicates, consortia, etc.);
4.2. decisions on the acquisition of companies;
4.3. solutions for using complex financial instruments in operations with fixed capital.
1. decisions on developing new markets and services;
2. decisions on the acquisition of intangible assets.
The degree of responsibility for the adoption of an investment project within a particular direction varies. So, if we are talking about replacing existing production capacities, the decision can be made quite painlessly, since the management of the enterprise clearly understands in what volume and with what characteristics new ones are needed. The task becomes more complicated when it comes to investments related to the expansion of core activities, since in this case it is necessary to take into account a number of new factors: the possibility of changing the position of the company in the goods market, the availability of additional volumes of material, labor and financial resources, the possibility of developing new markets, etc. d.
Obviously, the important question is the size of the proposed investment. Thus, the level of responsibility associated with accepting projects worth $100 thousand and $1 million is different. Therefore, the depth of analytical study of the economic side of the project, which precedes decision-making, must also be different. In addition, in many companies the practice of differentiating the right to make investment decisions is becoming commonplace, i.e. the maximum amount of investment within which one or another manager can make independent decisions is limited.
Often decisions must be made in conditions where there are a number of alternative or mutually independent projects. In this case, it is necessary to make a choice of one or more projects based on some criteria. Obviously, there may be several criteria, and the probability that one project will be preferable to others according to all criteria is, as a rule, significantly less than one.
Two analyzed projects are called independent if the decision to accept one of them does not affect the decision to accept the other.
Two analyzed projects are called alternative if they cannot be implemented simultaneously, i.e. acceptance of one of them automatically means that the second project must be rejected.
In a market economy, there are a lot of investment opportunities. However, any enterprise has limited financial resources available for investment. Therefore, the task of optimizing the investment portfolio arises.
A very significant risk factor. Investment activity is always carried out under conditions of uncertainty, the degree of which can vary significantly. Thus, at the time of acquiring new fixed assets, it is never possible to accurately predict the economic effect of this operation. Therefore, decisions are often made on an intuitive basis.
Making investment decisions, like any other type of management activity, is based on the use of various formalized and informal methods and criteria. The degree of their combination is determined by various circumstances, including the extent to which the manager is familiar with the existing apparatus applicable in a particular case. In domestic and foreign practice There are a number of formalized methods with which calculations can serve as the basis for making decisions in the field of investment policy. There is no universal method suitable for all occasions. Perhaps management is still more of an art than a science. Nevertheless, having some estimates obtained by formalized methods, even if somewhat conditional, makes it easier to make final decisions.
Criteria for making investment decisions:
1. Criteria to assess the feasibility of the project:
1.1. normative criteria (legal) i.e. national norms, requirements of standards, conventions, patentability, etc.
1.2. resource criteria, by type:
Scientific and technical criteria;
- technological criteria;
- production criteria;
- volume and sources of financial resources.
2. Quantitative criteria to assess the feasibility of the project.
2.1. Compliance with the long-term goals of the project and the development goals of the business environment;
2.2. Risks and financial consequences (whether they add to investment costs or reduce expected production, price or sales);
2.3. The degree of sustainability of the project;
2.4. Probability of scenario design and state of the business environment.
3. Quantitative criteria (financial and economic), allowing you to select from those projects the implementation of which is advisable. (eligibility criteria).
3.1. project cost;
3.2. net present value;
3.3. profit;
3.4. profitability;
3.5. internal rate of return;
3.6. payback period;
3.7. sensitivity of profit to the planning horizon (term), to changes in the business environment, to errors in data assessment.
In general, making an investment decision requires the collaboration of many people with different backgrounds and different views on investing. However, the final word remains with the financial manager, who adheres to certain rules.
Rules for making investment decisions:
1. Invest cash into production or securities only makes sense if you can get a net profit higher than from keeping money in a bank;
2. It makes sense to invest only if the return on investment exceeds the rate of inflation;
3. It makes sense to invest only in the most profitable projects, taking into account discounting.
Thus, the decision to invest in a project is made if it meets the following criteria:
Cheapness of the project;
- minimizing the risk of inflationary losses;
- short payback period;
- stability or concentration of revenues;
- high profitability as such and after discounting;
- lack of more profitable alternatives.
In practice, projects are selected not so much as the most profitable and least risky, but rather those that best fit into the company's strategy.
Investment climate assessment
The investment climate is political, social and economic situation in the country, which from the point of view of potential investors (public and private) is profitable, and they invest their capital in its economy in order to contribute to their effective use, if at the same time it provides a guarantee of preservation and free repatriation of profits.Structurally, a country's investment climate is determined by investment potential and investment risk.
Investment potential countries are characterized by a combination (rate economic growth, the ratio of consumption and savings, the loan interest rate, the rate of return, the level and dynamics of existing inflation, consumer demand of the population), as well as the presence and ratio, development. By conducting an investment analysis, you can characterize its potential in advance.
A country's investment risk is characterized by the level of uncertainty in the theoretical forecast regarding future profit from investments. PI (return on investment) risk includes political, economic and social components.
The above allows us to formulate a standard minimum of requirements, the fulfillment of which allows us to determine the investment climate as favorable:
Stable general economic and political situation;
- a fairly impeccable legislative framework;
- the presence of a developed infrastructure designed to ensure an effective investment process.
For most countries (especially large ones and those with a federal structure), assessments of the investment climate (investment attractiveness) of regions are relevant and practically significant for investors.
So, I.A. The form provides a comprehensive assessment of the investment attractiveness of regions, which involves placing regions according to five synthetic indicators, taking into account their significance:
1) level of general economic development of the region (7 analytical indicators) - 35%;
2) level of development of the region’s investment infrastructure (5 analytical indicators) - 15%;
3) demographic characteristics of the region (4 analytical indicators) - 15%;
4) level of development of market relations and commercial infrastructure of the region (6 analytical indicators) - 25%;
5) level of criminal, environmental and other risks (4 analytical indicators) - 10%.
An assessment of a country's investment climate in the context of direct investment involves a detailed analysis of the investment attractiveness of individual sectors of the economy and specific investment objects (capital investments). A comparative assessment of the investment attractiveness of industries is carried out, as a rule, with their preliminary grouping in accordance with the methodology accepted in modern statistics. The most important general indicator is the level of return on investment in a long-term context. On a broader scale, the overall level of industry development, infrastructure, level of monopolization, degree of government influence, and qualifications of local industry specialists are analyzed.
Principles for evaluating investment projects
An investment project (IP) is associated with activities (organizational, technical, etc.) aimed at achieving certain goals (economic, social, environmental, etc.) and requiring the use of capital resources for their implementation. The most important evaluation categories are project-related costs and results of all types, the identification and comparison of which forms the core of investment project evaluation procedures.First, a preliminary survey of the project is carried out, during which the purpose of the project and its compliance with the current and predicted activities of the enterprise are determined. The preliminary survey also determines the risks associated with the project and whether the enterprise has the necessary experience to realize the opportunities created by the project. At the same stage, the criteria that will be used to evaluate the investment project are determined.
In the process of analyzing and assessing IP, it is necessary to solve the following main tasks:
1. Assessment of the feasibility of the project, that is, the possibility of its implementation, taking into account all existing restrictions of a technical, financial, economic and other nature.
2. Assessing the absolute effectiveness of the project, that is, checking the fulfillment of the condition: the significance of the achieved results is higher than the significance of the required costs (resource consumption).
3. Assessing the comparative effectiveness of projects (optimization), that is, comparing alternative projects (options) in order to select more appropriate ones and determine the advantages of some projects (options) over others. Within the framework of this task, ranking of projects or their sets can be carried out, used in optimizing investment decisions, variations in exogenous parameters (for example, the size of investment opportunities).
In the system of principles for assessing the effectiveness of investment projects, three structural groups can be distinguished:
Methodological principles, that is, the most general ones, related to the conceptual side of the matter and little dependent on the specifics of the project under consideration;
methodological principles, that is, those that are directly related to the project, its specifics, economic and financial attractiveness of the project;
operational principles, that is, those that facilitate the process of assessing the effectiveness of a project from an information and computational point of view.
Methodological principles
1. Project effectiveness (means the positive effect of its implementation, i.e. the excess of the assessment of the resulting results over the assessment of the total costs required to implement the project).
2. Adequacy and objectivity: when assessing results and costs, it is necessary to ensure a correct reflection of the structure and characteristics of the object in relation to which the project is being considered, taking into account the degree of unreliability and uncertainty objectively inherent in the future.
3. Correctness: the evaluation methods used must satisfy certain general formal requirements, which include:
Monotony, i.e. with increasing results and decreasing costs, the assessment of the effectiveness of the project, other things being equal, should increase;
- antisymmetry, i.e. when comparing two projects, the quantitative expression of the magnitude of the advantages of one of them must coincide with the expression of the magnitude of the disadvantages of the other;
- transitivity, i.e. if the first project is better than the second, and the second is better than the third, then the first must be better than the third.
4. Systematicity: taking into account the fact that the project “fits” into a complex social and therefore, during its implementation, internal, external, as well as synergetic (determined by the integrity of the system and the interaction of its subsystems) effects can take place.
5. Comprehensiveness: when assessing the effectiveness of projects, it is necessary to take into account the multifaceted consequences of their implementation - not only in economic, but also in social, environmental and other non-economic spheres and determine the appropriate types and values of results and costs.
6. Limited resources: when assessing the effectiveness of projects, it is necessary to proceed from the condition that all types of non-reproducible and reproducible resources are limited, i.e. resource prices used to calculate costs must include lost profits associated with possible alternative use of resources. Therefore, a zero assessment of the resulting effect when implementing a project does not indicate its non-profitability, but means that resources are used no worse (but not better) than they could be used in an alternative direction.
7. Unlimited needs: available limited resources can always potentially find an effective direction, because the total demand for resources is unlimited.
Methodological principles
1. Project specifics: it is necessary to take into account the specifics of the current economic mechanism, its influence on the assessment of the project by various participants in order to select a “compromise” solution based on the coordination of their interests.
2. The presence of different project participants predetermines the divergence of their interests, which implies the need to assess the effectiveness of the project from the perspective of each participant.
3. Dynamic processes: when assessing the effectiveness of a project, it is necessary to take into account that both the structure and characteristics of the objects included in it do not remain constant; Inflation has a big impact.
4. The inequality of non-synchronous costs and results involves bringing their values to a comparable form using the discounting method.
5. Consistency: it is necessary to take into account the scale of projects, which, in accordance with this criterion, are “small”, “large-scale” and “global”; "well" and "poorly structured".
6. Limited controllability, incl. past, already incurred and sunk costs.
7. Incomplete information, which occurs both in the form of risk and uncertainty, which requires the use of special assessment methods.
8. Capital structure: capital is usually divided into equity capital and debt capital; they have different degrees of risk (debt capital is less risky), which determines the choice of discount rate.
Operating principles:
1. Modeling, i.e. drawing up (simulation or optimization) economic and mathematical model for assessing efficiency. In the simplest case, these are direct counting models.
2. Computer support - creating a database, using software systems and carrying out multivariate calculations.
3. Interactive mode - dialogue to clarify the influence of various factors.
4. Simplification, i.e. choosing the simplest assessment method from an information and computational point of view.
The main indicators used to compare various investment projects (project options) and select the best one are indicators of the expected integral effect (economic at the level National economy, commercial at the level of an individual organization). The same indicators are used to justify rational sizes and forms of reservation and insurance.
There are several things to keep in mind and take into account general rules and principles of investment policy:
1. “Golden banking rule”: the use and receipt of funds must occur within the established time frame, and therefore long term investment must be financed with long-term funds.
2. Solvency principle: investment planning must ensure the solvency of the enterprise at any time. ROI principle: The cheapest means of financing should be chosen for all investments.
Assessment of investment qualities
Assessing the investment qualities of securities begins with a preliminary selection of assets that the investor, at least potentially, considers worthy of his attention. This takes into account, for example, the following factors: features of the issue and circulation of certain types of securities; their level of security; reliability and profitability; degree of liquidity.From an investor's perspective, stocks and bonds are currently of greatest interest for financial investments.
A share is a security without a specified circulation period, which indicates equity participation in the authorized capital of a joint-stock company, confirms membership in this joint-stock company and the right to participate in its management, gives its owner the right to receive a portion of the profit in the form of dividends, as well as to participate in the distribution of property during the liquidation of a joint stock company. To determine the investment qualities of shares, their classification is important.
In addition to analyzing the state of affairs at the enterprise, data on the state of affairs in the industry in which the enterprise operates is analyzed (based on the use of industry classifiers by level of business activity and by stages of development, as well as on the basis of a qualitative analysis of the development of the industry and its market).
The subject of study is also factors of a macroeconomic nature. The investor’s field of view should include indicators of GDP, inflation, interest rate, volume of exports and imports, exchange rate and so on. These data determine the general economic climate in the country and provide the investor with an understanding of the long-term and medium-term conditions.
The result of the fundamental analysis is a forecast of income, which determines the future value of the security. In this case, the investor receives a signal about the advisability of buying or selling a security.
Technical analysis assumes that all the countless fundamental reasons are summed up and reflected in prices stock market. The main point of this analysis is that the movement of exchange rates already reflects all the information, which is only subsequently published in the company’s reports and becomes the object of fundamental analysis. The main objects of technical analysis are the supply and demand of securities, the dynamics of the volume of purchase and sale transactions, and the dynamics of exchange rates. Another theoretical premise of technical analysis is that past market conditions repeat themselves periodically.
In this regard, the investor’s task is to determine, based on studying past market dynamics, what it will be like at the next moment, and make a decision about when to buy or sell a security. To determine the investment qualities of securities, the rating method is widely used. A rating is an expert’s opinion (judgment) about objective market indicators regarding the likelihood of payment of principal and interest, and about the quality of a particular stock instrument. The rating does not mean a specific recommendation to buy or sell securities; it is only information that investors can use as criteria when carrying out transactions with securities. It acts as a benchmark for the profitability and reliability of stock instruments, as a starting point when assessing credit risk by an investor. The rating allows for an impartial comparison of securities as investment objects.
Evaluating the effectiveness of investment activities
Investments are a fairly new term for our economy. Within the framework of the centralized planning system, the concept of “gross capital investments” was used, which meant all reproduction costs, including the costs of their repair. But there is a law of the RSFSR “On investment activity in the RSFSR,” which, together with other regulations, defines the legal, economic and social conditions investment activity on the territory of the country and is aimed at ensuring equal protection of the rights, interests and property of subjects of investment activity, regardless of the form of ownership.In accordance with this law, investments are funds intended for bank deposits, shares, shares and other securities, technologies, machines, equipment, licenses, including trademarks, loans, any other property or property rights, intellectual values invested in business and other types of activities for the purpose of making a profit ( income) and achieving a positive social effect. Investment is a broader concept than gross capital investment.
It is possible to highlight the distinctive features of investments: the possession of tangible and intangible assets on a certain legal basis, which gives the right to make decisions about their disposal. This is, for example, the right of ownership, the right of a patent holder, a holder of securities; independence and initiative when deciding on their investment in objects of entrepreneurial and other types of activity with the aim of making a profit in the future; giving invested values the status of investments; the ability established by law to carry out investment activities.
Investment is, one might say, something that is “postponed” for tomorrow in order to be able to consume more in the future. One part of the investment is consumer goods that are not used in the current period, but are postponed for the future (investments to increase inventories). Another part of the investment is resources that are directed to expand production (investments in machines, buildings, structures).
Investments mean those economic resources, which are used to increase the real capital of society, that is, to expand or modernize the production apparatus. Investments take place both in private (for example: an industrial enterprise builds new structures) and in public sectors(expansion of the communications network by the road service). A large share of investments falls on the construction sector of the economy. “When assessing the role and place of investment in modern life in Russia, we must proceed from the fact that maintaining investment activity and increasing it is a necessary condition for overcoming the economic crisis”2. Now I would like to move on to the concept of “investment activity”. Investment activity - investing, or investing, and the totality practical actions on the implementation of investments. Investment in the creation and reproduction of fixed assets is carried out in the form of capital investments.
Investment activity is one of the types. She has all the signs of entrepreneurship: independence, initiative, risk. But investment activity has its own specifics, which lies in the fact that investor funds are invested in business objects in order to make a profit from the use and operation of these objects in the future. The independence and initiative of the investor is manifested at the stage of making a decision to invest their own funds as investments in the implementation of any business object, and then the investor’s participation can also be passive in nature - expectations of profit.
In terms of content, investment activity can be divided into: direct, i.e. investments directly in the production of goods, works, services, construction or reconstruction of an object; loan, i.e. in the form of a loan, credit, “portfolio”, i.e. in the form of purchasing securities. Portfolio investing does not imply the investor's participation in the management of the enterprise, but only the receipt of dividends on the invested capital.
Investment activity can be considered as a series of sequential actions, which are conventionally divided into two stages:
a) on the first stage - the investor decides to invest temporarily free funds as investments. Then a marketing research of business objects is carried out in order to find the most effective ones in terms of making a profit. This stage ends with the signing of an investment agreement with all its participants, i.e. there is an investment and confirmation of the fact of investing funds in the chosen object of business activity. Thus, a tangible or intangible benefit is given the status of investment.
B) the next stage of investment activity is expressed in a set of practical actions for the implementation of investments. Here the competence of each participant in investment activity and the forms chosen by them to exercise these powers are determined. Practical actions for the implementation of investments are very diverse in their content and legal forms. Their essential features are that the rights and obligations of each subject and participant in investment activities are exercised in accordance with investment legislation and within the powers established in agreements between them, and each participant in investment activities does not have the right to interfere with the activities of other participants. The second stage ends with the creation of an investment activity object.
This division of investment activity into stages is to some extent conditional and is distinguished when making direct production investments. In portfolio and loan investment activities, the totality of practical actions for the implementation of investments is expressed by making a decision, choosing an object, investing funds in the form of a loan or credit, or purchasing shares or other securities. The second stage is making a profit from the investment.
It involves investing:
Upgrading or replacing production equipment;
to improve or modernize equipment;
in the commissioning of new production capacities in connection with an increase in production volumes and the development of new types of activities.
Investment decisions, like any other management decisions, are made on the basis of the choice of alternative investment projects that differ in the types and volumes of required investments, payback periods, and sources of funds raised. In this regard, making investment decisions requires assessing the effectiveness of projects and selecting the optimal option based on certain criteria. There are various methods for evaluating investment projects. All of them are based on an assessment and comparison of the size of the proposed investment and future cash flows from the investment. The most important of them are: the method of calculating the payback period of investments; method for calculating the investment efficiency ratio; methods based on the principles of discounted cash flows; net present value method.
Investment portfolio assessment
Evaluation of investment decisions, ranking of investment objects and modeling of the investment portfolio can be carried out based on various methods.Methods for modeling an investment portfolio. In accordance with the Pareto selection rule, the best option from the set of proposed investment objects is the option for which there is not a single object in terms of given indicators that is no worse than it, and for which at least one indicator is better. At the same time, to compare investment objects according to given indicators, preference tables are usually compiled, demonstrating the advantages of certain investment objects. Often, the Pareto selection rule provides a larger number of options than is necessary given the limited total volume of investment resources.
In this case, the Borda selection rule is applied, according to which investment objects are ranked according to the values of each indicator in descending order with the corresponding rank value assigned, and the best option The investment object with the maximum value of the total rank is recognized. The selection procedure can also be carried out on the basis of the selection method based on the specific weights of indicators, in which the main indicators themselves are ranked in order of importance for the investor. Each indicator is assigned a weight coefficient (in fractions of one) with the sum of all weight coefficients equal to one. The values of the indicator ranks for each investment object are weighted by the specific weights of the indicators themselves and summed up. The best investment property is characterized by the maximum value of this weighted rank.
It should be noted that when compiling an investment portfolio, combined methods can be used, for which the selection of investment projects is carried out in several stages, at each of which one of the rules is applied, followed by the exclusion of the selected options from further consideration. A generalized assessment can be carried out based on the summation of the values of all indicators under consideration or on the basis of the indicator to which the investor gives priority.
Estimated indicators may include basic indicators of return on investment, as well as indicators such as the total risk indicator for an investment project, indicator credit rating borrower, etc. The choice of one or another method for assessing investment decisions and forming an investment portfolio is determined by the specific target setting of the investor. At the same time, the methods considered do not allow us to sufficiently reflect the value of individual indicators in the system of comparative assessment of investment efficiency discussed in the previous chapter (net present income as a criterion indicator, payback period as a limiting indicator, etc.), to achieve maximum correspondence between the total the volume of financing of investment projects and expected investment resources. To the greatest extent, the principle of compiling an optimal portfolio corresponds to linear programming methods, which allow solving the problem of maximizing portfolio profitability under given restrictions.
Selection of investment objects based on profitability criteria. The selection of investment objects based on the criterion of profitability (efficiency) plays the most significant role in the process of investment analysis due to the high importance of this factor in the rating system. When setting up a linear programming problem, optimization of an investment portfolio is reduced to the problem of finding such a combination of investment objects that would provide the highest possible level of profitability under given restrictions.
As an arterial indicator of profitability, which should be maximized, the indicator of the total net present value of the investment portfolio, reflecting the total effect of investments, should be used.
Non-strict inequalities can be specified as restrictions:
The total volume of investments for objects in the investment portfolio Ii should not exceed the volume of investment resources allocated to finance investments Ip
the minimum internal rate of return for objects in the investment portfolio (IRR) must be no less than the cost of the expected investment resources k or the discount rate r established by the investor
the maximum payback period for objects in the investment portfolio Ti should not exceed the limit Tp established by the enterprise
other indicators significant for the investor.
Selection of investment objects based on liquidity criteria. The selection of investment objects according to the liquidity criterion is carried out based on the assessment of two parameters: the time of transformation of investments into cash and the amount of the investor’s financial losses associated with this transformation. The assessment of liquidity by transformation time is measured, as a rule, by the number of days required to sell a particular investment object on the market.
To assess the liquidity of investment objects based on the time of transformation of the investment portfolio as a whole, it is necessary to classify investments according to the degree of liquidity, highlighting:
Realizable investments Ip, including quick and medium realizable investments,
slow-moving investments Ic, including slow-selling investments and hard-to-market investments.
When assessing the liquidity of real investment projects characterized by a relatively low degree of liquidity, the investment period before the start of operation of the facility is usually considered as an indicator, based on the fact that a completed investment project that generates real cash flow can be sold at a relatively higher price. short term than an unfinished object. The average level of liquidity of a portfolio of real investment projects is determined as a weighted average value calculated on the basis of the share of investment resources allocated to projects with different implementation periods and the average implementation period of projects.
The assessment of the liquidity of investment objects based on the level of financial losses is determined based on an analysis of the individual components of these losses by correlating the amount of losses and costs to the amount of investments. Indicators of investment liquidity in terms of time and the level of financial losses are inversely related to each other, the economic content of which is that if an investor agrees to a greater level of financial losses when implementing investments, then he will be able to implement the project faster, and vice versa. The presence of such a connection allows the investor not only to assess the level of liquidity of investments, but also to manage the process of their transformation into cash, influencing the indicator of the level of financial losses.
Evaluation of the investment portfolio based on risk criteria. The assessment of the investment portfolio according to the risk criterion is carried out taking into account risk coefficients and the volume of investments in the relevant types of investments. First, specific risk indicator values are calculated for each type of investment.
However, it should be taken into account that this provision is valid only for the case of independence of the securities in the portfolio; if the securities in the portfolio are interdependent, then at least two options are possible. In the case of a direct correlation, as the number of securities in the portfolio increases, the level of risk does not change, since the profitability of all securities falls or rises with the same probability. In the case of an inverse correlation, as already noted for the investment portfolio as a whole, the least risky portfolio of securities can be formed by determining the optimal shares of securities of different types in it.
When assessing the investment portfolio of banks from the point of view of liquidity and interest rate risk you can use the risk level indicator proposed in the previous section, which is calculated as the ratio between investment assets and sources of financing, weighted by volume and timing.
Lower value of the indicator? indicates a reduction in relevant risks. An important condition for reducing the risk of an investment portfolio is to ensure the stability of its structure. This presupposes the correspondence of investment investments and sources of their financing not only in terms of volumes and terms, but also in such key parameters as the level of riskiness of investment assets and the degree of sustainability of the bank’s resources intended for financing investments. The higher the level of investment risk, the larger the share in the structure of liabilities should be occupied by stable funds.
Ignoring this provision may result in the use of high-risk long-term investments there are not enough sustainable sources that can be attracted to long term basis.
To determine the degree of stability of an investment portfolio, you can use a coefficient calculated by the formula Ks = Sum(r) Iar / Sum(s) IPs To assign risk coefficients to certain groups of investment assets, a methodology can be used Central Bank RF. The stability of liabilities is not assessed by the method under consideration. The results of calculating the stability coefficient of the investment portfolio for a group of financially stable banks indicate that its recommended value is 0.9-1.2. A lower value of the coefficient indicates insufficient efficiency in the use of sources of investment financing, and a higher value indicates increased risk and instability of the structure of the investment portfolio. This coefficient can be calculated to assess the stability of not only the overall investment portfolio, but also individual investment assets.
Due to the specific nature of the bank's activities as financial intermediary The bank's own capital occupies a small share in its total resource base compared to non-financial enterprises, which are characterized by a higher share of own funds than borrowed funds. This circumstance determines the difference in approaches to determining the stability of the investment portfolio of a bank and an enterprise. Thus, when assessing the stability of an enterprise’s investment portfolio, it is more appropriate to compare the volume of investments with its own sources of covering them.
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