In the tab "Investment analysis" you must specify:
Annual discount rates are set in percentage terms for three years of the project - for the year 1, 2 and 3. The discount rate used in the calculations for subsequent periods (after 3 years) coincides with the specified rate for the 3rd year. When calculating the "Financial analysis", it is considered, among other things, the weighted average discount rate (%). The weighted average discount rate is also used to calculate, for example, a modified internal rate of return - MIRR.
The cost of equity capital: preferred, common stock, reinvested earnings as a percentage (%).
In general, if the company is a limited liability company, you can enter the same percentage in the "Preferred, ordinary shares, reinvested profit" fields.
The percentage (coefficient) of borrowed sources of financing is calculated automatically and for all periods. Thus, not only interest money is taken into account, but also other payments in the composition of the cost of borrowed financing sources:
R = [ (∑Kn – ∑Zn) / ∑Zn ] х 100%,
r = [ (∑Kn – ∑Zn) / ∑Zn ] = ∑Kn / ∑Zn – 1,Where:
☛ Note that the cost of credit financing (in%) is displayed in the settlement results when the item of final settlements "Financial Analysis" is executed.
As a rule, the vast majority of projects are planned in the horizon up to 3 years (36 months). However, to calculate the project payback and other integral indicators, the calculation period can be extended to 15 years (180 months).
The planning of the dynamics of changes in cash flows (cash flow forecast) is indicated in percentage, respectively, for each of the three planned cash flows:
In the calculations, planning the dynamics of changes in cash flows considered as the increase of the absolute values of cash flows, compared to the corresponding prior period. Accordingly, the values of negative increments should be negative: for example, "-10".
To calculate the forecasted cash flow, an element-wise approach is used that allows for forecasting each component of the cash flow. To determine the value of the elements of the numerical series (average annual cash flow), an extrapolation method with a simple trend correction is applied.
The detailed period of project planning (by months) is three years (36 months). As a rule, the working stage of almost all medium and most large projects does not exceed three years. For the calculation of subsequent periods (after 3 years of planning), the forecasted trend of changes in the growth of cash flows is used. The maximum period for calculating investment indicators is 15 years.
In the table "Planning the dynamics of changes in cash flows" you need to specify the percentage increase in the absolute values of cash flows. The first three years are calculated and not available for editing.
The forecast coefficient for positive (negative) cash flows is calculated using the formula:
Кn = 1 ± Rn / 100% ≡ 1 ± rWhere:
K n - is the forecast coefficient in the n period,
R n - is the percentage specified in the n period,
r - is the percentage coefficient (Rn / 100%).
To determine the predictive value, positive cash flow forecast is multiplied by the factor [1 + r], respectively, a negative flow – on [1 - r].
Note that if the value is "0", this means that the cash flow in this period will be determined at the level of the previous period (year).
If it is necessary to zero the cash flow in the current and subsequent periods, in this case, in the current period, you need to specify the forecast increase [-100%] - for a positive cash flow, and accordingly [+ 100%] - for the negative, and in the subsequent periods simply indicate "0".
See the following table in the "Cash Flow Forecast".
Settings additional settings "exceptions from the cash flow" allow you to adjust calculations depending on the definition of objectives and risks to be considered in the investment analysis. In this case we are talking about net cash flow (NCF), on the basis of which, further, to calculate all integral parameters. For example, the exclusion of cash payments "cash equivalents" (short term deposits) literally means that these personal funds will be returned into the cash flow for calculation of integral indicators. That is, it is assumed that these funds can be returned at any time, and so it is necessary to exclude influence of this factor on the calculations. The same applies to the acquisition of rights of ownership (securities) and other highly liquid assets. However, in the first case, the exception of cash equivalents is quite logical, so it's not just diversion of funds, and in fact is temporarily shifted in the "other pocket". In the second case we are talking about the assessment of the impact of abstract tools integrated indicators, which can be interesting to analyze project risks.
☛ Note that the indicator "the impact of cash equivalents" is excluded from the cash flow by default.
Also, you can exclude interest on loans and dividends from the cash flow. Note, by default, dividends are excluded from the cash flow.
When the button is clicked, set the default values:
– a button "restore default values".
This assumes the "standard" calculation of the efficiency of the project: calculated the total volume of investment in fixed and working capital required for the project. Refer to the table settings to the default settings.
Depending on planning objectives, appropriate settings will help to realize different scenarios of calculations: standard calculation of the efficiency of the project; implementation project of an existing enterprise; based on the selected funding sources, etc. in addition, the settings allow you to adjust the net cash flow, depending on the purpose of analysis.
In the settings for each parameter need to "install" or "remove" check box – click the same – "Enter" or any digit ("0-9"):
☑ – "set" or "uncheck" the check box.
The user is prompted to specify the contents of the expect cash flows to choose the appropriate calculation parameters. Settings can be divided into three conditional parts:
1. You need to clarify the net cash flow, excluding the specified values from the cash flow (see the settings table).2. You need to determine the initial investment - choose one of three mutually exclusive options (see the settings table). By default, the initial investment is calculated - as an absolute need for financing (taking into account the settings of net cash flow), calculated on the basis of net cash flow (discounted inflows and outflows in all periods).
|Exclude from the calculation of cash flow:|
|1||Effect of monetary equivalents||✔|
|2||Interest on loans|
|4||Buying and selling property rights|
|5||Other highly liquid assets|
|Consider initial investment:|
|1||Calculation of investment needs (discounted)||✔|
|2||Calculation of investment needs (not discounted the 1st year)|
|3||Sources of financing used|
|1||Step - Month||✔|
|2||Step - Quarter|
|3||Step - Year|
|4||Calculation start, month index (1-25)||1|
|5||Calculation period, years (1-15)||3|
|6||Take into account future years investments||✔|
|7||Balance at the beginning is assumed equal to zero|
|8||The WACC calculation includes a tax on profits||✔|
|9||Present value of investments prenamerando|
The basis for calculating investment performance indicators (integrated indicators) is net cash flow (NCF), which in turn is allocated from the total cash flow - operational, investment and financial. To obtain a net cash flow from the total cash flow, financing (credit financing and equity instruments) is completely eliminated, and all financial payments, as a rule, to repay loans, are "returned". Therefore, the adjustment of the elements of net cash flow directly affects the resulting integral indicators.Discount step.
When predicting the cash flow, you can choose the calculation step for each year: by month, by quarter or by year (by the total annual values). The imposed scheme must meet the conditions of the specific purpose of the calculations.
The choice of the discounting step in projects with a duration of up to 3 years significantly affects the calculation of integrated indicators. This can be compared with the effect of the lens - with the discounting step, each period is "considered" in more detail. That is, in this case, the money will not become cheaper as in the case of the annual step of discounting, but smoothly (monthly). For smaller projects and projects with a payback period of up to 3-5 years, a more "fair" estimate of the value of money can be of considerable significance in the calculation. Similarly, if most of the financing falls on the middle of the project (for example, credit financing in construction projects), setting the "year" discounting step can significantly distort the calculation results, as net investment will be discounted along with net proceeds (estimated demand for financing).Calculation start, month index (1-25).
The index of the month (1-25) starts from the first period (1), and ends at the beginning of the third year.Calculation period.
Calculation period, years (1-15). The basic, detailed calculation is three years (36 months). The maximum period for calculating investment indicators is up to 15 years.
Even if the project is planned in the horizon of 3 years (36 months), for the calculation of recoupment and other integral indicators of this may not be enough, therefore, the calculation period may be extended up to 15 years (180 months).How to take into account the investments of subsequent years.
This option is only meaningful if initial investments are considered to be "sources of funding" (user defined in settings). If the check box is selected, during all three years of the project the initial investment will be included only sources of funding. Otherwise, the initial investment will funding sources used in year 1 of the project (12 months), then will use the standard calculation needs.
☛ Note that if you select this "Requirement Calculation" option, the "Consider future investments next year" check box is selected by default.The balance at the beginning is assumed to be zero.
If the flag is set to "balance at the beginning is assumed to be zero", in this case, the previous periods of the project before the start of the calculation (set by user) will be ignored and calculation of the integral indicators will start from scratch – from the beginning of the project. Otherwise, the calculation will include the final cash flow for past periods.
☛ Note that by default, the flag "balance at the beginning is assumed to be zero" is disabled.
|1 step||In the first place is calculated net cash flow (NCF)|
|2 step||Calculates net funding needs (see "Features of the calculation of cash flows in Budget-Plan Express")|
|3 step||Calculation of net proceeds (net need for financing is subtracted from net cash flow)|
|4 step||Cash flow discounting|
|5 step||Calculation of performance indicators: NPV, IRR ... NOPLAT, WACC, EVA and other|