An investment business project is a set of activities aimed at making a profitable investment of funds in order to make a profit in the near future. The number of investment objects is very wide. They may differ depending on different criteria such as:

• volume of financial resources;
• scale;
• area of ​​activity;
• duration and so on.

Regardless of the specifics of the project, it will necessarily have four components: the implementation period, the amount of expenses, cash flow and liquid value. Interest in the direction is determined by the relationship of these 4 components.

Each project has a specific list of indicators of its effectiveness and assessments, which are calculated throughout the entire period of its existence. General data must necessarily contain:

• Description of the direction of activity, composition of the products proposed for release or specification of services.
• Data on the location of production or company.
• Information related to the specification of production technology or the specifics of the provision of services.
• List of necessary resources for the implementation of activities.

Any project must be accompanied by papers that clearly describe the direction of investment with deadlines inclusive. An important parameter of each investment object is the balance of material resources. It is calculated based on the difference between money coming in and money going out during each investment period.

Development of a project for investment

Any investment project is activated even before the implementation of the actions provided for in the relevant documentation. Its completion is also carried out much later than the pre-established deadlines. There are only two stages of the investment cycle:

• Pre-investment, without a clear time frame. At this stage, marketing research is carried out, sources of resources for the implementation of activities are determined, active negotiations are held with potential partners, and the legal registration of the enterprise is carried out. The result of the entire complex of work done is a detailed and detailed investment plan-project, in other words, a business plan.
• Operational stage. It begins with the first actual actions. This includes purchasing equipment, renting or purchasing real estate, concluding partnership agreements, etc. The general characteristics of the project are directly related to the duration of this stage.

Many experts insist that the investment project has one more phase, which is transitional between the two described. The investment phase is a broad list of tasks related to business management. This may include the formation of financial and legal frameworks, and the solution of organizational problems. At this stage of work, management and administration are appointed, personnel are hired and trained.

External environment as one of the risk factors

Evaluation of investment projects is a generalized concept that is quite often separated from the external environment in which the project operates and develops. The relationship between the components has two important consequences:

• Employees or project managers must be able to easily adapt to any changes, no matter when they occur.
• Enterprise managers should, whenever possible, influence changes in the external environment for the benefit of the project.

The effectiveness of the investment project will also depend on how thoroughly and carefully external potentially important influencing factors were assessed and controlled. Experts recommend paying attention to such points as inflation and the possibility of implementing a project in any currency of the world, prospects for modifying the taxation system and raising or lowering interest rates. Among the secondary external factors on the basis of which the effectiveness of investment projects should be assessed are the infrastructure of the region where the object is located, the regional regulatory framework, and the attitude of federal and municipal authorities towards the implementation of a certain type of activity.

Project evaluation

The specifics, stages and features of using project economic efficiency values ​​are constantly changing and require systematic study. This is based on two trends. According to one of them, an investment project can act either as an independent unit for evaluation, or in the format of an element of property, which in the cost version is evaluated together with technical and intellectual resources. The second direction involves an assessment with the goal of subsequently buying or selling property. The potential owner of the property considers the direction for investment, comparing the expected amount of investment with income, costs and the actual price. The discounting process in this situation will be implemented in the format of a profitable approach, which requires constant adjustment.

Investment projects can be assessed based on a large number of factors. This includes the situation on the investment market, the actual state of affairs in this area, the professional interests and abilities of the investor, the financial viability of the project itself, geopolitical factors, and much more. This is something that has to do with the personal preferences and interests of the investor. In practice, universal schemes and formulas are used, which in numerical values ​​and in material indicators can clearly reveal the attractiveness of a particular direction. Clear calculations allow you to get an objective answer to the question of whether the project in which you plan to invest money is capable of bringing good profits that can easily cover any expenses.

A simple form of investment calculation

Financing investment projects from the point of view of the owner of capital is a refusal to receive immediate profits for the sake of higher income in the future. The problem of assessing the attractiveness of a destination lies in a multilateral analysis of investments and the cash flow that they should provide. The analyst's task is to determine how much the expected results of a particular object correspond to the expectations of the investor himself. Making a decision regarding investment is allowed only if there is information about full reimbursement of expenses, about the correspondence of the amount of additional profit to the level of risk, about the likelihood of achieving the goal.

Calculation methods for investment projects are divided into simple (or statistical) and complicated, based on changes in the value of money in a certain time period. Simple assessment methods were widespread in Soviet practice. The economic rationality of material injections was based on a system of indicators that corresponded to actual economic conditions. This may include:

• Investment efficiency ratio. Formula: project efficiency = annual profit: investment amount.
• Payback period. Formula: payback period = investment amount: annual profit.
• Comparative economic efficiency based on cost minimization. Formula: economic efficiency = current costs + standard efficiency ratio - capital investments for each option.

The investment process has a unique characteristic - a time gap. A certain period of time must pass from the moment of investing funds to the moment you receive profit. Calculating an investment project using a simple, domestic scheme is biased, since it misses such a significant aspect as time.

A complex form of calculating the profitability of a project

The adoption of market relations and new legislative acts regarding investment activities have opened up new areas for activity for investors:

• Wide range of investment objects.
• Additional criteria for assessing areas for investment.
• Unique sources of financing.
• In-depth criteria for objects that allow you to evaluate the effectiveness of an investment project.
• Opportunity to use work results in a variety of ways.

Hence the simple conclusion - when evaluating any project, it is important to take into account external factors. The essence of the complex valuation method is based on the fact that cash flows for income and expenses are not assessed as a single whole, but are completely independent quantities. An objective assessment is only possible when the costs of a specific project are compared with the profit at the time of expenditure. Thus, the risks of investment projects are taken into account, and income is discounted. Economic assessment makes it possible to determine the attractiveness of a direction in comparison with other industries available for investment. Project evaluation using a complex methodology involves studying indicators such as:

• Payback period.
• Net worth of income at a given point in time.
• Rate of return (or profitability ratio).
• Internal rate of return.
• Profitability rate of financial management.

A rational assessment of the scope of investment in a modern economy can only be made taking into account the entire range of indicators. The economic essence of each direction is different. The analyst has access to information about different aspects of the project, which makes it possible to make a decision solely by comparing all the values.

Project effectiveness: types and specifics

The implementation of investment projects is allowed only after their comprehensive assessment, which can be carried out on the basis of a number of criteria, ranging from scale to investor interest. The main indicator of the profitability of a direction is efficiency. Rationalism makes it possible in the future to receive from investments not only economic benefits, but also non-economic ones, in particular the relief of social tension.

• Overall efficiency, which is divided into socio-economic and commercial.
• Efficiency of participation, including efficiency for enterprises, for investors who will purchase shares in the future, for large companies and even for government agencies.

What does the modern market economy dictate?

Any investment project in modern conditions of a market economy must be considered simultaneously from a large number of sides. The principles and methods that allow for directional analytics are as follows:

• Modeling the flow of funds, resources and products with services.
• Market analysis including the financial condition of the enterprise.
• Level of trust in project management.
• Impact of the implemented project on the environment.
• Comparison of future expenses with results. It is based on orientation and on achieving a rate of profit in accordance with the amount of capital.
• Calculation of potential expenses and income, their commensurability and economic value at the initial stage of the project and at its final stage.
• Assessing the likelihood of inflation affecting the situation. Including risks associated with delayed payments and other issues that may have a direct impact on the value of the material resources used.
• Consideration of uncertainty, including the risks of investment projects.

Comprehensive analysis and risk minimization

After making calculations and creating a business plan, it is necessary to answer the question of whether the enterprise is able to fully implement the idea. A rational answer helps to find a comprehensive analysis of the economic sector within which this project exists. It is important to assess competing organizations in this area. For Western countries, it is typical to use the following criteria to evaluate the industry as a whole:

• direction maturity;
• the place that an enterprise occupies in a specific segment of activity.

By assessing the level of competitiveness of a project in the target segment, it is possible not only to determine its life cycle. Investors are presented with the most effective areas of investment that will allow them to raise the organization to a higher level. The stage of preliminary assessment of the object, although it does not last for a long time, is very important. Given the wide diversity of organizations, the general scheme of preliminary analysis comes down to one single scenario, which involves a number of activities aimed at assessing the commercial feasibility of the project, technical and financial, as well as economic and institutional. The risks are analyzed last. If the results of the analysis do not meet expectations, the direction is not closed. Certain adjustments may be made, with further analysis to be carried out from the outset. Such a circular assessment scheme can be repeated until a satisfactory calculation result is obtained.

Even if the indicators of an investment project turn out to be positive, they should be compared with data from other projects of a similar type. There is a high probability that other areas will turn out to be more attractive and capable of bringing returns in a shorter period of time. In order to determine as accurately as possible a profitable direction for investment, a huge amount of work needs to be done. When it comes to investing in large commercial projects, such as factories or processing plants, the process of analyzing the situation at the site can drag on for six months, or even more. The investor’s profit and the size of the risks will depend on the accuracy and objectivity of the calculations.

Project risks

Absolutely all economic investment projects are directly related to risks of a very different nature. The level of their influence on the activity of the object may increase due to radical changes in the state’s economy, due to the volatility of market conditions, due to the emergence of a large number of innovative areas for investment. The integration risk of the real investment process is based on project risks. They are related to actual actions. In the system of indicators for assessing objects, the level of risks occupies the third most important position.

Real project risks imply the likelihood of unfavorable financial circumstances in the form of loss of expected investor income with the uncertainty of its implementation. Assessing the effectiveness of investment projects is impossible without considering risks, which, in turn, have characteristic features:

• Integrated character. The total risk indicator consists of a large number of coefficients calculated for all types of secondary risks.
• Objectivity of occurrence. Risks are inherent to each of the investment areas, regardless of the specification of activity and area.
• Diverse species structure. At each stage of the implementation of an investment project, various types of risks may arise, which should be assessed with a focus on different stages of the implementation of the activity.
• Strong connection with commercial issues.
• Binding to the duration of existence of a certain object.
• Dramatic changes in the indicator relative to single-plane projects.

It is worth adding here that assessing risks for a specific investment project is extremely problematic due to the limited amount of information. Moreover, there are not enough indicators on the market that would help make the most accurate calculations to evaluate an investment project. An example of an effective investment is always supported by additional costs for assessing the situation, for analytics, and for attracting audit companies. Not only should the documentation for the project be ideal, but the actual work of the project itself should be consistent with the available data.

Investment project: example

In practice, investment projects are documents that describe in detail certain business activities, starting from the planning stage and ending with obtaining certain results.

An example of an investment project is the construction of a residential complex. Investment will be made in construction. To enter the project, it is necessary to allocate funds for the purchase of a land plot, for construction materials, wages for workers and other issues. The profitability of the project will be generated through the sale of ready-to-use square meters and the sale of parking spaces.

Another example would be investing in a brewery. The purpose of the investment will be to modernize production lines and further sell beer. To achieve optimal profitability indicators, it is worthwhile to re-equip, expand old and create new markets. Important points are the expansion of the range and the implementation of a set of marketing activities.

Any company and any enterprise can act as the center of an investment project. The main thing is that in order to rationally assess the effectiveness of investments, you need to apply all the indicators described above to the priority area.

The definition of an investment project is given in Law No. 39-FZ, as well as in the “Methodological recommendations for assessing the effectiveness of investment projects” (No. VK 477, approved by the Ministry of Economy, the Ministry of Finance and the State Construction Committee of the Russian Federation on June 21, 1999). It should be taken into account that the “Methodological Recommendations” separately introduce the concepts of “project” and “investment project”. Thus, the term “project” is understood in two senses:

As a set of documents containing the formulation of a goal, upcoming activities and the definition of a set of actions aimed at achieving it;

As the complex of actions itself (works, services, acquisitions, management operations and decisions) aimed at achieving the formulated goal; that is, as documentation and as activity.

An investment project (IP) in the “Methodological Recommendations...” is defined in accordance with the Law “On Investment Activities...”, and it means the justification of the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and duly approved standards (norms and rules), as well as a description of practical actions for making investments (business plan). In other words, according to this definition, an investment project is, first of all, a comprehensive action plan, including design, construction, acquisition of technologies and equipment, personnel training, etc., aimed at creating a new or modernizing existing production of goods (works, services) ) for the purpose of obtaining economic benefits. An investment project is always generated by some project (in the sense of the second definition), the rationale for the feasibility and characteristics of which it contains. In this regard, under certain properties, characteristics, parameters of an individual entrepreneur (duration, implementation, cash flows, etc.) in the “Methodological Recommendations...” are understood the corresponding properties, characteristics, parameters of the project generating it.

The goals of evaluating investment projects (hereinafter referred to as IP) may be different, and the results obtained during their implementation are not necessarily in the nature of obvious profit. There may be projects that are unprofitable in themselves in the economic sense, but bring indirect income by gaining stability in the provision of raw materials and semi-finished products, entering new markets for raw materials and sales of products, achieving some social effect, reducing costs for other projects and production, etc. In many economically developed countries, the issue of environmental protection and ensuring the safety of company products for users and nature is very acute (large companies often include relevant information on capital and operating costs in this direction in the analytical sections of their annual reports). In this case, traditional indicators of effect, as well as criteria for assessing the feasibility of adopting a project, based on formalized algorithms, may give way to some unformalized criteria.

The objects of capital investment in the Russian Federation are various types of newly created or modernized property located in private, state, municipal and other forms of ownership, with exceptions established by federal laws. Capital investments in facilities, the creation and use of which do not comply with the law RF and duly approved standards are prohibited.

The subjects of investment activity are investors, customers, contractors, users of capital investment objects and other persons. Investors, i.e. persons making capital investments, can be individuals and legal entities created on the basis of an agreement on joint activities and not having the status of a legal entity, associations of legal entities, government bodies, local governments, as well as foreign business entities ( foreign investors).

Both investors themselves and individuals and legal entities authorized by them can act as customers for an investment project. Direct work on the construction of production facilities in accordance with the requirements of the project is carried out by contractors, which are understood as individuals and legal entities performing work under a contract or government contract concluded with customers in accordance with the Civil Code of the Russian Federation. Contractors are required to have a license to carry out those types of activities that are subject to licensing in accordance with federal law.

Users of capital investment objects can be both investors and any individuals and legal entities, including foreign ones, as well as state bodies, local governments, foreign states, international associations and organizations for which these objects are created.

A subject of investment activity is permitted by law to combine the functions of two or more entities, unless otherwise established by an agreement or government contract concluded between them.

The life cycle of a project is the period of time between its development and the moment of liquidation. The life cycle consists of three distinct phases: pre-investment, investment and operational (Table 1.1).

Table 1.1 - Stages of the life cycle of an investment project

Pre-investment phase
1. Formation of an idea for an investment project	Selection and preliminary justification of the plan
Innovative, patent and environmental analysis of a technical solution (technical object, resource, service), the organization of production of which is provided for by the planned project
Verifying the need to meet certification requirements
Preliminary approval of the investment plan with federal and industry priorities
Preliminary selection of an enterprise or organization capable of implementing the project
2. Invested investment opportunities	Preliminary study of demand for products and services, taking into account exports and imports
Assessment of the level of basic, current and forecast prices for products (services)
Preparation of proposals on the organizational and legal form of project implementation and the composition of participants
Assessment of the expected volume of investments according to consolidated standards and a preliminary assessment of their commercial effectiveness
Preparation of permits
Preparation of preliminary assessments for sections of the project feasibility study, in particular assessment of the project’s effectiveness
Preparation of an investment proposal for a potential investor (decision on financing work to prepare a feasibility study for the project)
3. Analysis of the external environment	Conducting a full-scale marketing research (supply and demand, market segmentation, prices, elasticity of demand, main competitors, marketing strategy, product retention program on the market, etc.)
4. Preparation of a feasibility study for the project	Preparation of a product release program
Development of technical solutions, including a master plan, technological solutions (analysis of the state of technology, equipment composition; utilization of existing production facilities; proposals for modernization of production; purchase of foreign technologies; raw and other materials used, components, energy resources)
5. Development and examination of a project business plan	Urban planning, architectural planning and construction solutions
Engineering support
Measures for environmental protection and civil defense
Description of construction organization
Description of the enterprise management system, labor organization of workers and employees
Estimated financial documentation, including assessment of production costs, calculation of capital costs, calculation of annual revenues from enterprise activities, calculation of working capital requirements, projected and recommended sources of project financing (calculation), estimated needs for foreign currency, investment conditions, selection of a specific investor, execution of agreement
Assessing the risks associated with the implementation of the project
Project time planning
Assessment of the commercial effectiveness of the project
Analysis of the budgetary and/or economic efficiency of the project (using budget investments)
Formulating the conditions for terminating the project
A discussion of the business plan by specialists in marketing, finance, and production is carried out with the aim of assessing its objectivity and in-depth study of individual sections. The pre-investment phase ends with a decision to finance the project or refusal of financing by a specific investor
Investment phase
1. Legal preparation for project implementation	Creation (if necessary) of a legal entity
Preparation of contract documentation for the supply of raw materials
Preparation of contracts for the supply of products
Conclusion of loan agreements
2. Scientific and technical training	Preparation of technical documentation for a new (investment) product
Development of production plans
Identification of manufacturers and suppliers of non-standard raw materials
Changes in production and management structure
3. Demand formation and sales promotion	Formation of a sales strategy
Creation of sales channels and service centers
4. Construction and installation work	Construction and installation work, equipment adjustment
Training
Release of a leading (pilot) batch of products
Operational phase
Operation of the facility, monitoring of economic indicators	Product certification
Creation of a dealer network
Current monitoring of project economic indicators

It is at the pre-investment stages of the life cycle that its viability and investment attractiveness are established. The quality of project preparation, taking into account the criteria and requirements of international expertise, serves, as noted earlier, as a kind of guarantee for a foreign investor and reduces its investment risk. Unfortunately, due to the high labor intensity of project preparation and the lack of qualifications of enterprise specialists in this field, domestic investment seekers devote insufficient time to this stage of work on the project. As a result, most projects sent for examination to international financial organizations and funds do not find an investor.

Analysis of technical aspects: examination of the expected scope of the project, types of processes used, materials, equipment, site location, work schedule, availability of production assets and labor, necessary infrastructure, proposed methods of implementation, operation and maintenance of the project, feasibility of the project schedule and phased benefits. . An important part of technical analysis is checking the estimated investment and operating costs for the project.

Organizational (institutional) aspects: competence of administrative personnel and compliance of the organizational structure with the assigned tasks.

Environmental assessment: existing environmental conditions, potential impact of the project on the environment.

Commercial analysis: is there a market for products (services) produced under the project under consideration. The results of this analysis are key for economic and financial purposes.

Investment projects can be classified according to various criteria:

1. Based on their functional focus, the following types of enterprise investment projects are distinguished:

Investment renovation projects are aimed at replacing retiring fixed assets and intangible assets and are carried out, as a rule, at the expense of the enterprise’s depreciation fund;

Investment development projects characterize the expanded reproduction of the economic activity of an enterprise, ensuring its growth in a new cycle of economic development. They provide the greatest increase in the market value of the enterprise;

Rehabilitation investment projects are developed in the process of anti-crisis development of the enterprise and are aimed, as a rule, at restructuring its property or certain types of activities.

2. According to investment goals, modern investment practice distinguishes:

Investment projects that ensure an increase in production volume; are associated with the implementation of such forms of real investment as new construction, reconstruction, expansion of the equipment fleet, ensuring an increase in inventories of tangible current assets;

Investment projects that ensure expansion (updating) of the product range; are associated with the implementation of such forms of real investment as the acquisition of integral property complexes (enterprises of a different industry profile that ensure a synergistic effect), new construction, repurposing;

Investment projects that improve product quality; usually associated with the implementation of modernization and reconstruction of an enterprise, during which new technologies and modern equipment are introduced;

Investment projects that reduce production costs; are associated with the implementation of modernization and reconstruction of the enterprise, but only with a different target effect than in the previous case;

Investment projects that provide solutions to social, environmental and other problems. These projects ensure the implementation of non-economic goals of the enterprise's investment activities.

3. Based on compatibility of implementations, the following are distinguished:

Investment projects independent from the implementation of other enterprise projects. Such projects are characterized by the greatest alternativeness in achieving investment goals for each of the forms of real investment of the enterprise. They also have the greatest variability in terms of implementation time;

Investment projects dependent on the implementation of other enterprise projects. In principle, a complex of such projects can be considered as a single integrated investment project of an enterprise, the individual constituent structural elements of which can be implemented only in a certain technological or time sequence;

Investment projects that exclude the implementation of other projects. Such projects aimed at realizing a specific investment goal exclude the possibility of using alternative types.

4. According to the implementation period, the enterprise’s investment projects are divided as follows:

Short-term investment projects. Such projects are implemented over a period of up to one year. They are associated with such forms of real investment as updating certain types of equipment, innovative investing, investing in the increase in inventories of tangible current assets;

Medium-term investment projects. The implementation period for such projects ranges from one to three years. Such a period of implementation is, as a rule, required by investment projects that ensure the modernization of the enterprise's technical equipment fleet, its reconstruction, preparation and implementation of the acquisition of entire property complexes;

Long-term investment projects. The implementation of such investment projects requires more than three years. Such a period of implementation requires projects of large-scale new construction or repurposing of an enterprise, accompanied by its complete reconstruction.

5. According to the expected sources of financing, the following are distinguished:

Investment projects financed from internal sources. This form of financing is typical only for small investment projects of an enterprise that ensure the implementation of such forms of its real investment as ensuring an increase in the reserves of its tangible current assets, updating certain types of equipment, and purchasing inexpensive types of intangible assets;

Investment projects financed through corporatization. The issue of shares can be used by an enterprise to implement both medium and large investment projects of strategic importance;

Investment projects financed by credit. Such investment projects are usually associated with financial leasing of equipment. The high cost of long-term bank loans at the present stage hinders the use of investment projects of this type;

Investment projects with mixed forms of financing. These projects are currently the most common in investment practice.

Global investment projects, the implementation of which significantly affects the economic, social or environmental situation on Earth;

National economic investment projects that have an impact on the entire country as a whole or its large regions (Ural, Volga region), and when assessing them, we can limit ourselves to taking into account only this impact;

Large-scale investment projects covering individual industries or large territorial entities (subject of the Federation, cities, districts), and when assessing them, the impact of these projects on the situation in other regions or industries may not be taken into account;

Local investment projects, the action of which is limited to the framework of a given enterprise implementing individual entrepreneurs. Their implementation does not have a significant impact on the economic, social and environmental situation in the region and does not change the level and structure of prices in commodity markets.

7. Based on their main focus, projects can be divided into:

Commercial investment projects, the main goal of which is to make a profit;

Social investment projects aimed at solving, for example, problems of unemployment in the region or social adaptation of former military personnel, etc.;

Environmental investment projects, the main focus of which is improving the living environment of people, as well as flora and fauna.

Justification of investment projects involves a certain structuring of them. From the standpoint of financial management of investment projects, the most relevant is their structuring by individual stages (phases) of the life (project) cycle, as well as by the functional focus of its sections.

Traditionally, capital investment objects are usually associated with investment projects. According to the Law "On Investment Activities..." investment project - this is a justification of the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and duly approved standards (norms and rules), as well as a description of practical actions for making investments (business plan).

This definition makes it difficult to use important terms and characteristics of an investment project. Indeed, as follows from the above text of the Law, an investment project is, first of all, a comprehensive plan of activities aimed at creating a new or modernizing existing production of goods (works, services) in order to obtain economic benefits. Based on this, it is difficult, for example, to introduce such fundamental concepts as “the effectiveness of an investment project”, “individual entrepreneur cash flows”, “individual entrepreneur payback”, etc.

The term "project" is understood in two senses:

• as a set of documents containing the formulation of the purpose of the upcoming activity and the definition of a set of actions aimed at achieving the goal;
• as the complex of actions itself (works, services, acquisitions, management operations and decisions) aimed at achieving the formulated goal.

In investment theory and practice, the term “project” is usually used in the second sense.

An investment project (IP) in the “Methodological Recommendations...” is defined in the same way as in the Law “On Investment Activities...”.

According to the “Methodological Recommendations...” at the heart of any investment project there is always a certain project as a set of works and services aimed at achieving investment goals, and the investment project gives a description of this project from the point of view of the economic feasibility of its implementation. Consequently, an investment project is always generated by some project (in the sense of the second definition), the rationale for the feasibility and characteristics of which it contains. In this regard, one or another properties, characteristics, parameters of the IP (duration, implementation, cash flows, etc.) are understood as the corresponding properties, characteristics, parameters of the project generating it. In other words, when assessing the acceptability of an individual project for the construction and operation of, for example, a gas station, it should be assumed that there is a set of works (project) for the construction of a gas station, the description of which is fixed in the investment project. Then the “effectiveness of the investment project” of a gas station means the effectiveness of the project as a set of works.

Classification of investment projects

The most important classification criterion is the degree of mutual influence of investment projects on each other, which is understood as the relationship of decisions and results in one project from decisions made on another project: it is considered that project A affects project B if decisions on project A must be taken into account decisions on project B (and vice versa - if in order to make decisions on project B it is necessary to take into account decisions on project A).

Based on their mutual influence on each other, investment projects can be divided into the following types.

Independent investment projects – when the decision to accept one project does not affect the decision to accept another IP.

In order for investment project A to be independent of project B, at least two conditions are necessary:

• – there must be technical capabilities to implement project A, regardless of whether project B is accepted or not. For example, it is technically possible to organize the production of window frames without implementing a project for the production of window glass. In the same way, from a technical point of view, it is possible to implement a project for the construction of a gas station without taking into account decisions on the construction project of, say, a kindergarten;
• – the income expected from project A should not be affected by decisions made on project B.

If we consider the above pairs of investment projects, it is obvious that, according to this condition, the construction projects of a gas station and a kindergarten are not interconnected - it is difficult to imagine that the income of the owners of a gas station is determined by the results of the functioning of the kindergarten. As for the first pair of projects - the production of window frames and window glass, the conclusion that there is no relationship between their income seems incorrect.

The assumption that these two projects need to be implemented simultaneously is justified.

Sometimes a company, due to lack of financial resources, cannot implement two projects at the same time. In such a situation, the acceptance of one project will entail the rejection of the second. However, it would be incorrect to call projects dependent only on the grounds that the investor does not have enough funds for their joint implementation. Indeed, if a company does not have the financial capacity to simultaneously build a gas station and a kindergarten, then because of this these projects will not become interdependent.

Dependent investment projects – these include projects for which the decision to implement one project affects another project, i.e. The cash flows for project A change depending on whether project B is accepted or rejected.

Dependent projects can be divided into several types.

• 1. Alternative (mutually exclusive) projects – when two or more analyzed projects cannot be implemented simultaneously, and the acceptance of one of them automatically means that the remaining projects cannot be implemented. For example, on an allocated plot of land either a workshop, a canteen, or a parking lot can be built - the adoption of one of these projects automatically makes it impossible to implement the others.
• 2. Complementary projects when the implementation of several projects can only take place jointly. Two types of complementary projects are of significant interest:
  • A) complimentary projects – in this case, the adoption of one investment project leads to an increase in income from other projects. An example of complementary projects can be the projects discussed above for the production of window frames and window glass;
  • b) projects connected by substitution relationships, when the adoption of a new project leads to a slight decrease in income from one or more existing projects. Substitution relationships are connected, for example, between a project for the production of durable goods (power tools) and a complementary production project for the repair of these tools. Indeed, the manufacturer of power tools understands that it will face difficulties in marketing its products if repair shops are not opened. But for the manufacturer, the ideal situation would be when there was no possibility of repair and in case of any malfunction of the power tool, it would be replaced with a new copy.

The second criterion for classifying investment projects is the period of their implementation (creation and operation). According to this criterion, investment projects are divided into three types:

• 1) short-term investment projects – implementation period up to three years;
• 2) medium-term investment projects – implementation period is three to five years;
• 3) long-term investment projects – implementation period is over five years.

The third criterion for classifying projects is their scale. It should be taken into account that scale of the investment project characterizes its social significance, which is determined by the impact of the project implementation results on at least one of the internal or external markets (financial, goods and services, resources), as well as on the environmental and social situation. In terms of scale, it is recommended to divide projects into the following types.

• 1. Global investment projects, the implementation of which significantly affects the economic, social or environmental situation throughout the world or in a large group of countries. An example of such projects is the construction of continental oil and gas pipelines, the creation of a global information exchange network system, the formation of direct East-West rail transit, etc.
• 2. National economic investment projects , affecting the entire country as a whole or its large regions (Ural, Volga region), and when assessing them, we can limit ourselves to taking into account only this influence. Projects of this scale include federal highways and railway lines, large power plants, etc.
• 3. Large-scale investment projects, covering individual industries or large territorial entities (subject of the Federation, cities, districts), and when assessing them, one cannot take into account the impact of these projects on the situation in other regions or industries - the construction of large enterprises, bridges, regional information systems, etc.
• 4. Local investment projects , the action of which is limited to the framework of the given enterprise implementing the IP. Their implementation does not have a significant impact on the economic, social and environmental situation in the region and does not change the level and structure of prices on commodity markets.

It should be borne in mind that global, national economic and large-scale projects are socially significant projects, the results of which are important for society as a whole. Local projects are not considered socially significant.

The fourth criterion for classifying investment projects is their main focus. Direction of the investment project depends on his goals. From the point of view of this criterion, investment projects can be divided into the following types:

• commercial investment projects , whose main goal is to make a profit;
• social investment projects oriented towards solving, for example, problems of unemployment in the region or social adaptation of former military personnel, etc.;
• environmental investment projects, whose main focus is improving the living environment of people, as well as flora and fauna, for example, establishing a park, constructing wastewater treatment plants, land reclamation, etc.

The appropriate classification of projects allows firms to purposefully pursue an investment policy, rationally use financial and other resources, and achieve an optimal ratio of project costs and results obtained from it.

• "Methodological recommendations for assessing the effectiveness of investment projects." Official publication. M.: Economics, 2000. P. 104.

investment capital asset financial

An investment project is the most important means of strategic development of a company. The formation of an investment portfolio, focusing on the directions of the investment strategy, determines the composition of the main investment projects within the framework of individual investment programs. In a market economy, there are quite a lot of investment opportunities. At the same time, any commercial organization has a limited amount of free financial resources available for investment. In order to select from the variety of possible areas for investing funds those that are the most effective from the point of view of investment goals, it is necessary to evaluate them.

An investment project can be considered as a plan, an idea for the acquisition, creation or change of an investment object with an appropriate description and justification of the goal, investment attractiveness (investment qualities), as well as the possibilities of practical implementation.

In the most general sense, an investment project is a plan or program for investing capital in real assets with the aim of obtaining a result consistent with the investor's goal and strategy.

The goals set by the initiators of investment projects can be very different, and the results obtained during their implementation are not necessarily in the nature of obvious profit. There may be projects that are unprofitable in themselves in the economic sense, but bring indirect income by gaining stability in the provision of raw materials and semi-finished products, entering new markets for raw materials and sales of products (reducing the risks of production and sales), reducing costs for other projects and production, and etc. Public investment projects may pursue social or environmental goals. In many developed countries, the issue of environmental protection and ensuring the safety of company products for users and nature is very acute. In this case, traditional criteria for assessing the feasibility of accepting a project, based on formalized algorithms, may give way to some informal criteria.

When analyzing projects, determining the degree of interdependence of investment projects is of great importance. Independent projects can be evaluated autonomously, and the acceptance or rejection of one of these projects does not in any way affect the decision regarding the other. Alternative projects are competing; their assessment can occur simultaneously, but only one of them can be carried out due to limited investment resources or other reasons. Dividing projects into independent and alternative ones is especially important when assembling an investment portfolio under conditions of restrictions on the total volume of capital investments.

When evaluating investment projects, one must remember that investments are carriers of risk. Investment activity is always carried out under conditions of uncertainty, the degree of which can vary significantly. More risky are projects related to the creation of new industries and technologies, less risky are projects carried out under government orders and with government support.

Projects can be short-term or long-term. Short-term projects include projects with a implementation period of up to two years, and long-term projects - over two years. Another classification of projects by duration is possible: short-term (up to 3 years), medium-term (3 to 5 years) and long-term (over 5 years).

The interval between the moment a project appears and the moment it is eliminated is called the project life cycle (or project cycle).

The project life cycle can be divided into the following stages:

Project identification. An idea for a project is developed, it undergoes initial development and is compared with other project options. In other words, this is the stage of preliminary feasibility study.

Project development. At this stage there is a detailed study of all aspects of the project. A final feasibility study is being prepared, marketing research is being conducted, markets for future products and their main segments are being determined, and product requirements are being formulated based on market analysis. Suppliers of raw materials and equipment are being selected, and negotiations are underway with potential investors. The legal registration of the project can also be carried out here (preparation of constituent documents, agreements, contracts, etc.).

Assessment (examination) of the project. The prepared business plan is studied by the management of the companies participating in the project, independent experts, potential creditors, federal and (or) municipal authorities and management.

Acceptance of the project. At this stage, management at all levels and lenders make the final decision on the project, taking into account the fact that the company, as a rule, has alternative options for using capital, and lenders have offers to finance other investment projects.

Implementation of the project. This stage requires fundamentally large costs, and these costs are irreversible (construction of buildings and structures, purchase of equipment, technologies, etc.). The complexity of this phase of project development also lies in the fact that the project is not yet able to support itself.

For project organizers during this period, an extremely important task is to monitor the implementation of the project so that, on the one hand, it does not deviate from the financial, time and other indicators included in the business plan, and on the other hand, so that, if necessary, promptly make changes to the project .

Operation of the project and evaluation of its results. This period marks the beginning of production of products or provision of services. In financial terms, it is characterized by revenues from the sale of products, works (services) and current costs.

The real effect of the investment project is assessed and compared with what was planned in advance.

There is no doubt about the importance of pre-investment research. This stage includes the following stages:

Search for a project concept;

Preliminary project preparation (feasibility study);

Assessing the feasibility and financial acceptability of the project.

Poor justification of the project leads to such serious difficulties in its implementation that they cannot always be implemented during the implementation of the project. Therefore, the role of project analysis is extremely important, allowing an objective assessment of its quality from various points of view, including economic, and an assessment of the degree of risk is also necessary. Preparation of investment projects is carried out on the basis of the preliminary development of a business plan.

The business plan of an investment project is a standard document in which the concept of a real investment project is substantiated in detail and its main parameters are given.

The business plan must convincingly prove the effectiveness of making an investment decision for all interested participants in the investment project: potential investors and lenders, experts, local administration, etc. First of all, a business plan is used to justify long-term investment decisions related to the mobilization of external sources of financing for the production of new products by creating new production facilities or increasing their production on the basis of technical re-equipment or reconstruction of existing production.

The composition of the business plan and the degree of its detail depend on a number of factors: the scale of the project, its nature and target orientation, the degree of risk, etc. Currently, a unified structure of the business plan has been determined, which includes:

1. Introductory part.

2. Review of the state of the industry (production) to which the enterprise belongs.

3. Description of the project.

4. Production plan.

5. Marketing and sales plan.

6. Organizational plan for project implementation.

7. Financial plan for the project.

8. Assessment of the economic efficiency of costs incurred during the implementation of the project.

The financial plan for the project is prepared after the marketing plan and production plan are prepared. It should include a brief overview of the conditions in which the enterprise will operate, data on sales volume, gross profit, equipment costs, labor and other costs, as well as a detailed analysis of income and expenses, net profit formation and profitability of the enterprise. This section of the business plan can be drawn up only after the scope (boundaries) of the project have been determined, taking into account unforeseen costs and inflation.

Unforeseen expenses can be material or financial. Material costs are related to the accuracy of forecasting sales, design requirements, materials and services and range from 5 to 10% of the estimated cost of the project.

Financial costs are associated with inflation, changes in the base interest rate and other factors.

Drawing up a financial plan takes place in several stages:

1. Forecast of sales volume in markets for each year.

2. Calculation of costs for products and services sold based on the forecast of sales volumes, current standards, pricing policy and sales conditions.

3. Description of counterparties, their reliability, distribution of contracts over time, costs by counterparties.

4. Calculation of the supply of raw materials, energy, water (technical and drinking), spare parts and operating materials for the next 5 years, supply of labor resources.

5. Forecast of costs (semi-fixed, semi-variable and total) by year.

6. Calculation of planned profit for each year.

7. Analysis of the point of critical sales volume - break-even point.

8. Description of sources of financing according to the following scheme:

Sources of resource formation (own and borrowed funds);

After-tax profit distribution policy (share of profit allocated to the accumulation fund, payment of dividends);

Measures to control consumer payments; financial policy for credit insurance;

Performance evaluation criteria;

Insurance methods.

Thus, a business plan produces three basic forms of financial statements: an income statement, a cash flow statement, and a balance sheet.

The development of business plans for investment projects is closely related to the strategy chosen by the enterprise for managing a portfolio of real investments.

The effectiveness of investments is determined by the ratio of the results of investments and investment costs. To comprehensively determine the effectiveness of investment projects, it is customary to evaluate projects according to the following positions:

The effectiveness of the project as a whole.

Effectiveness of participation in the project.

The effectiveness of the project as a whole is assessed to determine its potential attractiveness for possible participants and to find sources of financing. It includes:

a) public (socio-economic efficiency);

b) commercial efficiency.

Social efficiency indicators express the socio-economic consequences of the project for society as a whole, including not only the direct results and costs of the project, but also external effects in related sectors of the economy, as well as environmental and other non-economic effects.

Indicators of the commercial effectiveness of a project take into account the financial consequences of its implementation for the participants implementing the project (income and costs).

Let's consider the most important principles used in international and domestic practice to assess the effectiveness of investments.

The first of these principles is the assessment of the return on investment based on cash flow generated from profits and depreciation charges. The cash flow indicator can be used to assess the effectiveness of a project, differentiated by individual years of operation of the facility or as an annual average.

The second principle of evaluation is the mandatory reduction to the present value of both the invested capital and the amount of cash flow. This is due to the fact that the investment process is not carried out simultaneously, but goes through a series of stages reflected in the business plan.

The third principle of evaluation is the choice of discount in the process of discounting cash flow for various investment projects. The amount of investment income (in the form of cash flow) is determined by taking into account the following factors:

average real discount rate;

inflation rate;

investment risk premium;

premium for low investment liquidity (for long-term capital investment).

The fourth principle is that different variations of the form of interest rate used for discounting cash flows are chosen based on valuation objectives.

The set of methods (indicators) used to assess the effectiveness of investments can be divided into two groups:

static (not taking into account the time factor).

dynamic (taking into account the time factor).

The static approach, due to its simplicity and efficiency, is widely used at the preliminary stages of project analysis in the express assessment of various investment solution options. It involves calculating indicators such as simple rate of return and payback period.

The simple rate of return (ARR) reflects the performance of an investment.

When using this method, the average net profit (P) over the life of the project is compared with the average investment (IC):

The average investment amount is found by dividing the initial investment amount by two, under the assumption that upon expiration of the project, all costs will be written off.

Net liquidation value is the difference between its market value on the one hand and the amount of liquidation costs and withholding tax on the other.

The payback period (PP) characterizes the duration of the period when the project will work “for itself.” The method consists of calculating the number of years required to fully recover the initial costs, i.e. The moment is determined when the cash flow of income equals the sum of the cash flow of costs. Projects with the shortest payback periods are selected. The general formula for calculating the PP indicator is:

PP = min n, at which
(2)

where: CF t – net cash flow of income;

IC is the sum of cash flows of costs.

The indicator of the payback period of investments is very simple to calculate; it allows one to judge the liquidity and riskiness of the project, since, for example, a long payback means a long immobilization of funds (reduced liquidity of the project) and an increased riskiness of the project.

In order for the value of receipts and payments of future periods to correspond to the current point in time, all payments are reduced to the same date (for convenience, the zero period is taken, i.e., the beginning of the project) through discounting. Discounting is a way of reducing the future value of money to its value today. Discounting is carried out on the basis of the compound interest method by multiplying the corresponding value by the discount factor α.

α = (1+r) - t ,

where r is the discount rate;

t – serial number of the project life cycle period.

Within the framework of the discounting approach, it is proposed to calculate such indicators as net present value, internal rate of return, profitability index, and payback period.

Net present value (NPV) is the sum of all discounted net cash flows of the project, reduced to the initial calculation period, and characterizes the integral effect of the project.

This indicator is the main one for assessing the effectiveness (consistency) of investment projects.

(3)

where CF t is the value of the net cash flow of the t-th period of the project life cycle;

CF i = OCF t – ICF t,

where: OCF t is the amount of net cash receipts from operating activities for the project during the t-th period of the project life cycle;

ICF t is the amount of investment payments for the project of the t-th period of the project life cycle;

r – discount rate;

n – number of periods in the project life cycle.

Obviously, if: NPV > 0, then the project is considered effective and should be accepted;

NPV< 0, то проект следует отвергнуть, так как заданная норма прибыли не обеспечивается и проект убыточен;

NPV = 0, then the project only pays back the costs incurred, but does not generate income.

The calculation of the discounted payback period (DPP) is closely related to the calculation of the NPV indicator. The formula for calculating DPP is:

DPP = min n, at which
(4)

And the Project Profitability Index (PI), which shows how many units of the current cash flow are per unit of estimated initial costs. To calculate the IP indicator, the formula is used:

(5)

If PI > 1, then the project should be accepted;

If PI< 1, проект не обеспечивает заданного уровня рентабельности, и его следует отвергнуть;

If PI = 1, the project is neither profitable nor unprofitable and should be rejected.

Another indicator recommended for evaluating an investment project is the internal rate of return (IRR). It is an individual characteristic of each specific project and is determined by its internal conditions, in contrast to the discount rate (r), specified by external conditions.

The internal rate of return is understood as the value of the discount rate r at which the net present value of the investment project is zero: IRR = r, at which NPV = f(r) = 0. Thus, IRR is found from the equation:

(6)

The economic meaning of the IRR indicator when analyzing the effectiveness of investments is to determine the maximum rate of payment for attracted sources of financing for the project, at which the project will remain break-even. This is because IRR is the threshold value of r. If the discount rate is higher than the IRR, then we get NPV< 0. Значит IRR может трактоваться как низший гарантированный уровень прибыльности инвестиционных затрат, или максимально допустимый для конкретного проекта уровень расходов. Для оценки рентабельности проекта достаточно сравнить IRR со ставкой дисконта (r), проект признается эффективным, если IRR >r. One of the methods for finding IRR is the method of selecting r values. The starting value r is set and NPV is calculated; if NPV> 0, we increase r (and vice versa), the operation is carried out until we get NPV = 0.

When investing in a project, an enterprise, as a rule, incurs certain costs for the use of borrowed financial resources in the form of interest, dividends, etc. an indicator characterizing the relative level of these expenses is called the weighted average cost of capital (WACC). It reflects the current minimum return on the capital invested in its activities at the enterprise, its profitability. Consequently, an enterprise can make any investment decisions, the level of profitability of which is not lower than the current value of the WACC indicator (or the price of the source of funds for this project, if it has a target source). It is with this that the IRR calculated for a specific project is compared, and the relationship between them is as follows.

If: IRR > WACC. then the project should be accepted;

IRR< WACC, то проект следует отвергнуть;

IRR = WACC, then the project is neither profitable nor unprofitable.

Regardless of what the IRR is compared to, it is clear: a project is accepted if its IRR is greater than some threshold; Therefore, other things being equal, a larger IRR is generally considered preferable.

For a single project, the investment decision is more or less obvious. Dynamic evaluation methods give the same recommendations regarding whether to accept or ignore a project. A project acceptable according to one criterion will be acceptable according to others, since there are obvious relationships between the indicators NPV, PI, IRR, WACC:

if NPV > 0, then simultaneously IRR > WACC and PI > 1;

if NPV< 0, то одновременно IRR >WACC and PI< 1;

if NPV = 0, then simultaneously IRR = WACC and PI = 1.

In the process of assessment and analysis, an expert can obtain results when, according to the NPV criterion, the first project is more attractive, and according to the IRR criterion, the second one.

A number of the given indicators can be expanded. Thus, the price of capital can be considered not only as a discount rate used in calculating performance indicators, but also as an independent characteristic, since, as noted, it shows the threshold value of the rate of return on investments.

None of the criteria by itself is sufficient to make a decision. Each of them, carrying a certain semantic load, reflects one or another aspect of the effectiveness of the investment project. Therefore, it is concluded that the decision on the advisability of adopting a particular project should be made based on a comparison of the weighted average cost of capital and a set of static and dynamic indicators of the project’s effectiveness.