Investment Evaluation Difficulties
The financial criteria used for evaluation of the enterprise are not numerous; however, they are causing heated discussion on whether using a criterion at the expense of another.
The most utilized financial criteria used in the ranking of investment alternatives are: the net present value criterion, the internal rate of return criterion, the payback period limit criterion and last, but not least, the profitability index criterion. These criteria have in mind, in the first place:
ïƒ˜ investments impact on enterprise profitableness and results, by recording the future positive cash-flow
ïƒ˜ investments influence on the balance of an enterprise, traced through the evolution, on one side of the working capital1, on the other hand, the size of necessary working capital2
ïƒ˜ incidence of the investment project on enterprise risk level3
Therefore, to ensure the best possible decision making, investors must choose of using, and why not, even construction of relevant indicators regarding the opportunity of an investment decision in one alternative or another. It is advisable to take into account a number of principles, which are nothing more than to highlight variousaspects of technical analysis of investment projects.As a result, it is preferable not to neglect the value of money in time problem, solved by using dynamic indicators ofinvestment; investment project analysis with reference thebinomial risk - profitableness, ensuring that profitablenessof an investment is directly proportional to the risk categoryin which is framed; the basis for the investment decision to materialize with the help of marginal cash flow analysis and, certainly not with the help of paper profits; taking into consideration the fiscal policy of the company; elimination of the inflationary phenomenon in the decision process; targeting of low risk investment projects, because this risk adds to the whole risk of the enterprise etc.
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