Risk Analysis On Investment research projects

Abstract: The new project related to the financial aspects of risk prevention is the business in identifying risk, measure risk and risk analysis, based on the fully predictable, effective control of risks, with the most Economical way to financial risks may result in adverse consequences to a minimum of management methods.

Keywords: Investment; break-even point; Index
Research projects is an Investment targeting a specific construction projects, new projects directly related to long-term Investment. Evaluation and Investment Decision analysis is an important part of corporate finance activities, as the scale of Investment, high risks, recovery time long, the impact of future development of enterprises is also large. Therefore the risk assessment of Investment decisions is essential.

As new Investment projects in the initial phase of the project, Researchers focus only on the technical level of risk, professional limitations so that they can not see the whole existence of financial risk. The financial risk is an objective reality, to the complete elimination of risk and its impact is impossible to guard against financial risks of new projects, we are required to finance staff involved in project management, combined with financial expertise to quantify the risk and told the project managers early warning of risk, the loss to a minimum, for companies to create the largest gains.

Assessment of project risks is the key to how to identify early warning indicators and early warning indicators of critical value to determine whether there is the risk of the project, the new project in the daily management of financial risk should be periodically or dynamically critical value of early warning indicators and compare If the warning indicators close to or exceed the critical value, then according to the specific circumstances of the alarm. the core of the decision-makers can readily obtain information about the risks.

New items on the financial aspects of risk assessment, first of all from the Research stage, the project's Research phase of new projects mainly by Researchers from various channels to collect information about the project, such as equipment acquisition value, raw material prices, unit dosage, loss rates, wages, working hours, and the market price of similar products, external demand and the project objectives of profitability, and so the basic information and research reports issued accordingly.

Second, the financial staff under the new phase of the project scientists in the research report issued by research, according to which the basic data analysis of financial information provided with the financial feasibility analysis, including the value of the project description of each risk, such as cost information according to the design (including the estimated fixed costs, variable costs) and the target sales price to calculate the break-even point (BEP), which gives the external demand for the products should meet minimum; through the project's total Investment and the next few years The estimated net cash flows to calculate the payback period, while the product life cycle management that can compare Investment returns of the product life cycle is within the scope; uncertainty by estimating when a variable (such as sales, sales price, materials prices, labor costs, material costs, fixed costs, etc.) when changes occur to some extent, the project Investment decision indicators (net present value, net present value rate, profitability index, internal rate of return and profit values, etc. ) will be a corresponding change in the extent occurred in order to predict the size of the risk of new projects and analyze the investment decision-making indicators, a clear anti-risk ability of the project, thus becoming an important indicator of the risk assessment project.

First, break-even point analysis
Breakeven point, also known as zero profit point, break point, break the critical point, profit and loss differences, yielding a turning point. It means business in the state of neither profit nor loss to the volume of business to be (on production or sales), ie sales equal to the total cost of the investment or operation in a number of important boundaries. In recent years, the break-even analysis in business investment and business decision-making has been widely used. breakeven sales volume can be expressed, that is, break-even point sales; sales can also be used to indicate that the break-even point in sales. If the expected sales and close to break-even point, then that project is not profitable. breakeven point lower, indicating that the project's ability to adapt to market changes The larger the stronger the anti-risk ability.

In physical units: break-even point = fixed costs �� (per unit of product sales revenue - variable cost per unit of product)
The amount calculated by: break-even point = fixed costs �� (1 - variable costs / sales) = fixed costs �� contribution margin ratio
Break-even point by the unit price of products (P), unit variable cost (V) and total fixed costs (F) to calculate. Variable costs are proportional to changes in production levels and the elements, often including direct materials, and the use of direct labor costs. fixed costs do not change with the amount of the cost. usually include depreciation, rent, insurance, management, staff salaries and office fees. breakeven point is calculated as: BEP = F �� (PV).

According to the design cost information (including the estimated fixed costs, variable costs) and the target sales price to calculate the break-even point (BEP), which gives the external demand for the product should reach the minimum, and provide us with management decisions staff, more information based on current market sales are predicted, whether they have met the minimum, if not met will depend on its potential to improve and increase sales in order to determine the product from the sales of the risk.

Second, evaluation of investment decisions
Investment decision evaluation is used to measure and compare the feasibility of investment projects in order to carry out the program, according to the quantitative decision-making criteria and standards. From the perspective of financial evaluation, investment decision evaluation index can be divided into static and dynamic evaluation. By process does not take into account in calculating the time value of money called the static index of indicators of factors, including the static investment recovery period, the investment rate of return; in the calculation taking into full account the time value of money and the use of dynamic indicators, said indicators, including the net present value, net present value ratio, profitability index, internal rate of return.

(A) of the static evaluation
1. Payback period refers to the investment projects operating cash flows needed to cover the initial investment all the time. Investment recovery period from the project construction can begin on the date, can be put into operation since the project started counting, but should be specified.

Payback period calculated in accordance with cash flow, the specific calculation was divided into the following two situations:
After the completion of the project net income each year (ie net cash flow) are the same, the static investment payback period is calculated as follows: The payback period does not include the construction of the PP / = initial investment �� total number of years ago after the investment equal annual net cash flow; include the construction of the payback period PP = not include the construction of the payback period PP / + Construction period.

2. Investment yield, also known as return on investment (ROI) is the means of production of a normal year's EBIT or operating profit before interest and tax of annual accounts for the percentage of the total investment. Investment value as the parameters of evaluation projects A method, calculated using data on the financial statements.

Links to Research Papers Download http://www.hi138.com ROI (ROI) = EBIT or EBIT �� average total investment
To calculate the return on investment (ROI) basis with the investment rate of return determined by comparing the index of greater than or equal to the benchmark index, the investment project has the financial feasibility. Investment rate of return taking into account the full life of a project cash flow .

(B) of the dynamic index
1. Net present value (NPV) investment program to reflect the period in the calculation of the dynamic index of profitability. Investment program is the net present value basis using a predetermined rate of return (or set the discount rate) ic, calculated, respectively, during the whole of the years and the net cash flows are discounted to the start of the program when the investment value and the present.

Net Present Value (NPV) = ��NCFt (1 + K)-t + ��Ct (1 + K)-t
Net Present Value (NPV) is to evaluate the absolute indicators project profitability. When NPV> 0, indicating that the investment required to meet the benchmark rate of return than the profits, but also get excess returns, with financial viability; when NPV = 0, indicates that the investment rate of return for the basic requirements to meet the level of profitability, the program barely possible; when NPV <0, indicating that the investment project can not meet the benchmark rate of return required level of profitability, the program is not feasible; net present value (NPV) indicator considered the time value of money, and take full account of the project throughout the period the Economic situation; clear intuitive Economic significance, the amount of money directly to the profitability of that project, which better reflect the choice criteria the basic objective of Financial Management.

Benchmark rate of return benchmark discount rate, also known as ic is a dynamic view of investors identified, acceptable minimum standards for the investment projects the level of return. Benchmark rate of return to determine the general to the industry average rate of return basis, while integrated consider the cost of capital, investment risk, inflation and financial constraints factor.

2. Net Present Value Rate (NPVR) is the net present value investment projects accounted for the sum of the present value of the original investment ratio.

Net Present Value Rate (NPVR) = net present value projects (NPV) �� total present value of the original investment
Only the net present value is greater than or equal to the rate of the benchmark index, the investment project has the financial feasibility.

3. Profitability index (PI), is put into operation by setting benchmark rate of return or discount rate discounted cash flow of all annual net present value of the total present value of the original total investment ratio.

Profitability index (Pl) = put into the annual net cash flows, the total value of the present value of the initial investment �� Total = 1 + NPV rate
Only the profit index index of greater than or equal to 1 only has the financial viability of investment projects. It (the switch 281) (Continued from 279) is a relative indicator of the efficiency of investment, that is profitability.

4. Internal Rate of Return (IRR), is the present value of total capital inflows and capital flows equal to the total present value, net present value discount rate equal to zero.

Internal rate of return is expected to reach an investment rate of return, net present value of investment projects is equal to zero can the discount rate. Is the time value, taking into account the circumstances, so that an investment in the future cash flows present value of the investment costs just equal to the yield, rather than you think, "regardless of the level of net present value is zero, so the level does not matter", which is a confusing concept. because the premise of internal rate of return calculations would have is to make the net present value equal to zero.

The higher the internal rate of return, indicating that the cost of your relatively small investment, but the gains are relatively much. IRR is greater than the minimum required project return on investment or capital costs, is feasible; internal rate of return method to the life of the project its total investment income during the linked rate of return that the project to facilitate it with the industry benchmark rate of return on investment compared to determine whether it is worth the investment and construction projects.

Through the break-even point (BEP) of the use of the factors calculated under the premise of the preservation of the value of the biggest risks to the completion of a goal or the highest risk and lowest risk indicators, and the risks of project-related parameters , predict the relevant factors on net present value, internal rate of return and payback period and other major Economic impact evaluation, analysis can project the size of the risks, the management of static data into dynamic risk assessment data back to the project policy makers to promote the relevant departments to conduct risk assessments, understand the different elements of project-related changes in the financial parameters of the impact of the project to facilitate effective review and the subsequent stages of implementation.

The profitability of new investment projects and the success of industrialization, its former stage of the implementation process can not be ignored, risk assessment, the development of new projects, the role has been more and more attention and recognition of the new investment capital, the purpose is the pursuit of high-yield investments, venture capital for new projects guaranteed to get only in the case of high-yield companies are likely to become rapidly growing source of funding for the protection of the high yield on the new project is to carry out scientific risk assessment and effective control investment risks. good risk control system is our new research projects to ensure the successful operation of the system down, we are looking for the most appropriate way to reduce the project to run at the beginning of the risks, increase the use of the above assessment methods reasonable risk assessment methods can draw the ideal assessment of results.


References:
1, the Ministry of Finance accounting qualification evaluation center. Intermediate Financial Management. China Financial and Economic Publishing House .2009
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