Investment attractiveness of the article. Coursework: Analysis of the Investment Attractiveness of an Enterprise
Economic theories and textbooks offer a complex and confusing investment appeal. A layman has to understand the academic language in which these concepts are written for a long time.
For a simple and logical definition of this term, one should, first of all, be familiar with the concepts of investment and investment activity. Investments are cash, bank deposits, shares, stocks and securities, technologies, machines, equipment, various licenses, intellectual values invested in entrepreneurial or other activities to make a profit or achieve a positive social effect. Investment activity is an investment and a set of practical actions in the implementation of investments.
Hence the conclusion that investment attractiveness is the ability to arouse commercial interest in a real investor, the ability to accept and dispose of them in such a way that, as a result, improve the quality of manufactured products, increase production volumes, and capture new markets. And in the end - to get a net profit.
It must be said that from the point of view of an investor, not all enterprises have investment attractiveness. But on the other hand, almost all business owners have the opposite point of view. That is, they believe that their enterprise is able to interest investors by 100%. Such entrepreneurs can actively search for investors for years and not find them, sincerely surprised by this.
Therefore, all business owners should know what affects the investment attractiveness of their business. First, the investments made in a business must definitely bring it to a new level of production, technology and quality. Therefore, a detached store in an uncrowded place will never be attractive to investors. Secondly, the payback period for investments should be no more than 2.5 years for trade enterprises, no more than 3 years for the service sector, no more than 5 years for production sphere and no more than 2 years for innovative business areas. Thirdly, the investment object must be highly liquid. In other words, it should be possible to sell the entire enterprise, quickly and without problems. And fourthly, the business should have the widest possible opportunities for development.
Enterprises in decline, as well as enterprises operating in limited markets with very limited opportunities for development, will always be unattractive for investment.
Based on the foregoing, each entrepreneur can assess the degree of investment attractiveness of his business on his own. And if it is high - to work out ideas, prepare an investment project, look for and convince investors. And if it is low, try to increase it.
In the works of various scientists devoted to the problems of defining and understanding the "investment attractiveness" of an enterprise, there is no consensus regarding the definition and methodology for assessing the investment attractiveness of an enterprise. You can systematize and combine existing interpretations into four groups according to the following criteria:
investment attractiveness as a condition for the development of an enterprise; The investment attractiveness of an enterprise is the state of its economic development, in which, with a high degree of probability, investments can give a satisfactory level of profitability within acceptable terms for the investor, or another positive effect can be achieved.
investment attractiveness as a condition for investment; Investment attractiveness is a combination of various objective features, properties, means, opportunities that determine the potential effective demand for investments in fixed assets.
investment attractiveness as a set of indicators; Investment attractiveness of an enterprise is a set of economic and financial indicators of an enterprise that determine the possibility of obtaining maximum profit as a result of capital investment with a minimum investment risk.
investment attractiveness as an indicator of investment efficiency. Investment efficiency determines investment attractiveness, and investment attractiveness determines investment activity. The higher the investment efficiency, the higher the level of investment attractiveness and the larger the investment activity, and vice versa.
Investmentattractivenessenterprises is a system of economic relations between business entities regarding the effective development of business and maintaining its competitiveness.
From the standpoint of investors, the investment attractiveness of an enterprise is a system of quantitative and qualitative factors that characterize the enterprise's effective demand for investments.
Investment demand (together with supply, price level and degree of competition) determines the investment market conjuncture.
In order to obtain reliable information for developing an investment strategy, a systematic approach to studying market conditions is required, starting from the macro level (from the investment climate of the state) to the micro level (assessing the investment attractiveness of a separate investment project). This sequence allows investors to solve the problem of choosing exactly such enterprises that have the best development prospects in the event of the implementation of the proposed investment project and can provide the investor with a planned return on invested capital from the existing risks. At the same time, the investor considers the affiliation of the enterprise to the industry (developing or depressed industries) and its territorial location (region, federal district). Branches and territories, in turn, have their own levels of investment attractiveness, which include the investment attractiveness of their enterprises.
Thus, each object of the investment market has its own investment attractiveness and at the same time is in the "investment field" of all objects of the investment market. The investment attractiveness of the enterprise, in addition to its "investment field", is subject to the investment impact of the industry, the region and the state. In turn, the aggregate of enterprises forms an industry that affects the investment attractiveness of the whole region, and the attractiveness of the state is formed from the attractiveness of the regions. All changes taking place in higher-level systems (political instability, changes in tax legislation and others) directly affect the investment attractiveness of the enterprise.
Investment attractiveness depends both on external factors characterizing the level of development of the industry and the region of location of the enterprise in question, and on internal factors - activities within the enterprise.
When deciding on the placement of funds, the investor will have to evaluate many factors that determine the effectiveness of future investments. Given the range of options for combining different values of these factors, the investor has to evaluate the cumulative impact and results of the interaction of these factors, that is, to assess the investment attractiveness of the socio-economic system and, on its basis, make a decision on investment.
Therefore, it becomes necessary to quantitatively identify the state of investment attractiveness, and it should be taken into account that for making investment decisions, the indicator characterizing the state of the investment attractiveness of an enterprise must have economic meaning and be comparable to the price of the investor's capital. Therefore, it is possible to formulate the requirements for the methodology for determining the indicator of investment attractiveness:
The indicator of investment attractiveness should take into account all the factors of the external environment that are significant for the investor;
The indicator should reflect the expected return on investment;
The indicator should be comparable to the price of the investor's capital.
The methodology for assessing the investment attractiveness of enterprises, built taking into account the above requirements, will provide investors with a high-quality and reasonable choice of an investment object, control the efficiency of investments and adjust the process of implementing investment projects and programs in case of an unfavorable situation.
It is necessary to distinguish between the concepts of "investment attractiveness" and "financial condition of the enterprise". The financial condition of an enterprise is a set of indicators reflecting the availability, placement and use of financial resources, i.e. gives an idea of the current state of the assets and liabilities of the enterprise as a whole.
The indicators characterizing the financial condition of the enterprise are calculated according to standard methods, i.e. it can almost always be determined based on several formal criteria:
indicators of liquidity and financial stability of the trend of changes in profit, profitability of products and property (the received rate of return on capital);
the current financial position of the company and factors that can affect it in the near future;
the capital structure of the enterprise, risks and benefits from the investor's point of view;
forecast of prices for shares of an enterprise and its competitors in relation to general trends in the stock market.
With this setting of goals, the analysis of investment attractiveness and financial condition becomes a link between the enterprise, its investors and the stock market.
Investment risks are one of the main factors of investment attractiveness.
Investment risks include the following subspecies of risks: the risk of lost profits, the risk of a decrease in profitability, the risk of direct financial losses.
The risk of lost profit is the risk of indirect (collateral) financial damage (lost profit) as a result of failure to take any action.
The risk of a decrease in profitability may arise as a result of a decrease in the amount of interest and dividends on portfolio investments, on deposits and loans.
The risk of decrease in profitability includes the following types: interest rate risks and credit risks.
There are many classifications of factors that determine investment attractiveness. They can be divided into:
- production and technological;
- resource;
- institutional;
- regulatory and legal;
- infrastructural;
- export potential;
- business reputation and others.
It should be noted the importance of full accounting and quantitative assessment of project risks by investors when assessing the investment attractiveness of an enterprise (project) and making a decision on investment.
There are projects that are assessed as highly profitable, but with a high level of risk, for example venture investments, investments in projects for the creation and promotion of new goods and services to the market, the creation of new technologies, the expansion of existing ones and entry into new sales markets. Each of the above factors can be characterized by different indicators, which often have the same economic nature.
Other factors that determine investment attractiveness are classified into:
formal (calculated on the basis of financial statements);
informal (leadership competence, commercial reputation).
Investment attractiveness from the point of view of an individual investor can be determined by a different set of factors that are of greatest importance in choosing a particular investment object.
Globality modern economy and the all-pervading competition at all possible levels of business interaction presented the lack of investment resources to both large industrial holdings and thousands of small businesses. In fact, the capital market has become more of an investor (buyer) market than a manufacturer or seller.
In these difficult conditions, business owners are faced with a really difficult task to attract investor capital and somehow make their enterprise the most attractive in the long term.
The same kind of dilemma is faced by many investors, for whom the choice of a promising business to invest their resources has turned into a search for effective enterprises not only in their country or region, but also around the world, the benefit of borders for the movement of capital (this can already be stated as an accomplished fact) does not exist at all.
In this situation, it has become critically important for an investor or business owner to find universal and objective parameters that characterize the attractiveness of an enterprise. Business practice has developed a number of tools and methods, on the basis of which the indicators for assessing the investment attractiveness of enterprises can be brought into a single data system that is in demand by all participants in the investment process when making decisions.
This article will talk about what is (hereinafter API), what data sources it is based on and how these tools work in practice.
When determining the IPP for the investor, it is important, first of all, the economic return on the capital invested in the business, namely:
- Return on investment, or rate of return... In practice, these parameters are associated with the bank interest rate.
- - the time interval at which the full payback of the invested assets is achieved.
- Risk degree is directly related to both the enterprise itself and general conditions conducting business in a specific legal jurisdiction.
IN general view indicators for assessing the investment attractiveness of an enterprise are reduced to two main (generalized) areas of business analysis:
- fundamental analysis- aimed at a comprehensive study of the activities of both the company itself and the external conditions of its functioning
- technical analysis- a system of indicators characterizing the business cycles of a business, market conjuncture, dynamics of the company's value in the market and its operating indicators.
All these data for practical use can be divided into two large groups - external and internal factors of PPI, which will be discussed below.
External factors shaping PPI
In assessing and analyzing the external operating conditions of each specific business, there is no single methodology for universal application, since in different countries, territories, there are a large number of variable data and conditions that are difficult to unify for use as a single method investment analysis... However, the entire format of this data can be divided into three groups, which will contribute to a more practical construction of the PPI assessment model in each specific case.
In general terms, this model is based on the analysis:
- Estimates of the country's investment attractiveness, whose indicators are expressed by such elements as:
- general level of business activity in the country
- social and political stability
- protection of property rights
- availability of independent economic arbitration
- availability and development of financial infrastructure, stability of the national payment system, currency, capital market and stock market in particular
- taxation system, its predictability,
- demographic situation in the regions, availability of labor resources, especially qualified personnel, freedom of the labor market
- the level of consumer demand and the paying capacity of the population in each specific region where the company operates
- the specifics of the regional investment policy, which may differ markedly across the country as a whole, (for example, free economic zones, where there are significant tax preferences for non-resident investors)
- Assessment of the investment attractiveness of the industry where the invested company operates. Assessment of the investment attractiveness of sectors of the economy can be based on such parameters (shown in the figure), such as:
- the economic cycle of an industry (for example, the coal industry is in a long recession cycle, while the construction industry has recently experienced a consumer boom)
- business entry threshold, i.e. the minimum possible capital required to launch a full production cycle in order to reach a given level of market share
- the degree of competition in the market, the presence of monopolists or large players, pricing policy, anti-dumping restrictions
- resource provision of the industry, alternative supply routes and logistics opportunities
- the development of the technological structure in the industry, the degree of use of innovative technologies, their availability
- the degree of regulation of the industry by the state, its tariff policy, fiscal burden and tax preferences.
Various methods can be used to qualitatively analyze these important blocks of data, for example:
- Peer review methods
- The system of international economic and political ratings (for example, rating agencies Standard and Poors, Moodys, Fitch)
- Analytical materials of the World Bank, IMF and statistics of various
- Systems of regional ratings published by both independent information and analytical agencies (for example, RBC) and special economic institutions.
Assessment of the investment attractiveness of an operating enterprise
From a technical point of view, the methodology of analysis and assessment of the investment attractiveness of industrial enterprises differs little from the algorithms and tools used to study markets and external conditions. The practice of investing in the real sector has developed many specialized techniques, which, without exception, are based on the following data blocks used in, which can be combined into four main sections:
- Assessment of an enterprise as a capital asset. Here you can include, for example, the following parameters:
- assessment of the investment attractiveness of objects - the degree of wear and tear, the availability of new technologies and equipment,
- production potential - opportunities to increase production, product quality,
- power-to-weight ratio
- transport accessibility, connection with nodal logistics centers
- availability of a resource base, licenses and permits for nature use
- Assessment of PPI by financial indicators. This data system consists of parameters such as:
- the overall financial stability of the company, its ability to form a positive financial flow at a given time period
- creditworthiness
- the estimated value of the company as an asset, including elements such as reputation, brand name, goodwill, etc.
- assessment of the investment attractiveness of the issuer of shares, if the company is public. In this case, the data that are related to the stock market are subject to analysis - the value of shares, their price dynamics, dividend policy, reliability valuable papers issuer
- Assessment of the investment attractiveness of an industrial enterprise by market parameters:
- market share
- the level of demand for products and forecasts of its dynamics
- degree of market competition
- marketing policy of the company
- system of work with suppliers, distributors and other counterparties in the market
- reliability of supply channels for components and raw materials, availability of its own resource base
- Qualitative indicators of personnel and management:
- qualifications of the top management of the company, his ability to make adequate decision situations
- general level of qualification of operating personnel
- availability of personnel reserve
- personnel training and selection system
- staffing for business expansion
All these presented blocks of information for the most part lend themselves to formalized accounting and analysis, for which there are various methods of integral assessment, coefficients used both for preliminary investment analysis and for operational monitoring.
However, there are IPP parameters that are difficult to analytically assess, such as, for example, reputation, which, for all its apparent uncertainty, has a very real expression in prices on the market.
Evgeny Malyar
Bsadsensedinamick
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Investments
Evaluation Formulas and Examples
Navigating the article
- What is meant by investment attractiveness
- Objective indicators of investment attractiveness
- Comparative analysis of various methods for assessing the investment attractiveness of an enterprise
- Discounting cash flows
- Calculation by factors of influence
- Seven-factor model
- Analysis by internal indicators
- Comprehensive assessment method
- Regulatory analysis
- The specifics of assessing the investment attractiveness of the project
- conclusions
Almost every business needs to attract capital from outside. The willingness of third parties to invest in the development of an enterprise is determined by its investment attractiveness. This category is subject to objective assessment.
An article about what criteria and methods are used to determine the investment attractiveness of an entrepreneurial structure.
What is meant by investment attractiveness
The word invest is translated from Latin as "to invest". An investment is a set of values provided from the outside to the turnover of a financial structure in order to make a profit or achieve another useful result.
There are several definitions of investment attractiveness, each of which to one degree or another expresses the essence of this parameter. In a generalized form, they can be reduced to the following formulation: investment attractiveness is the result of assessing the totality of indicators of the state of the enterprise in the aspect of the expediency of investing in it.
When analyzing and developing a common solution, possible financial risks and their relationship to potential benefits, as well as other objective indicators necessary to analyze the stability of the investment object's position, should be taken into account.
Objective indicators of investment attractiveness
Like any other economic category, attractiveness in the eyes of investors is subject to digital assessment. The primary criteria that influence the decision to invest in an enterprise are indicators of overall economic efficiency. They can be used to judge the viability of the investment object and its potential. These criteria include efficiency and return on investment.
Overall efficiency capital investments... This indicator is a coefficient and is calculated by the formula:
Where:
P - the amount of profit for the billing period;
КВ - the sum of capital investments.
Payback period of capital investments. The inverse of the efficiency of capital investments (the higher it is, the shorter the payback period):
Where:
CO - payback period;
EKV - the efficiency of capital investments;
КВ - the amount of capital investments;
P - the amount of profit for the billing period.
Among other similar indicators - the coefficients of profitability, capital productivity, capital turnover, liquidity of securities and other numerical characteristics that indicate the degree of success of an economic entity. In other words, the more efficiently the company uses the capital already at its disposal, the more attractive it is for the investor.
Factors that determine investment prospects are divided into internal and external. They differ in the degree of possible impact of management activities on the financial performance.
Since the heads of the enterprise cannot influence external (macroeconomic) factors, the analysis is mainly carried out on internal characteristics, which mean the production potential of the company (technology, state of fixed assets, availability of trained personnel, etc.). The competitive situation in the market related to external factors is also taken into account.
Comparative analysis of various methods for assessing the investment attractiveness of an enterprise
The analysis and assessment of the attractiveness of an enterprise for investors can be carried out by various methods, including speculatively, "by eye". There is no single approved method for determining the effectiveness of an investment, but there are several most used algorithms that make it possible to predict it with the highest reliability.
Discounting cash flows
The method is based on the assumption of an annual growth in the value of a commercial organization after investment and identifying its commercial potential, taking into account inflation, expressed by the discount rate. The calculation will require data on revenue, profit and other expense and income items. The value of the enterprise is determined by the formula:
Where:
SP is the value of the enterprise;
CR - the price of the enterprise after the end of the billing period (in case of reversion);
SD - annual discount rate (depreciation of the monetary unit);
DP is the current incoming cash flow;
n is the number of years in the billing period (usually from 3 to 5);
i - number of the current year in the billing period.
The method does not provide one hundred percent accuracy, since it assumes that the dynamics remain unchanged throughout the entire calculation period. However, with an annual correction, its use makes it possible to predict the growth of the enterprise value quite realistically.
Calculation by factors of influence
The degree of influence of external and internal factors on financial results operating enterprise is different. To determine the intensity of the influence of each of them, a special sequence of actions is used. There are four stages in total:
- Sorting the most influential factors influencing the investment attractiveness using the Delphi method.
- Analysis of the intensity of the impact of individual factors.
- Creation of a regression multifactor model of an enterprise as an object of management (in the form of a "black box") and forecasting a further increase or decrease in its investment attractiveness.
- Development of recommended activities.
In addition to these actions, it is necessary to analyze other factors, mainly internal, that affect the ability to make a decision to invest in a company:
- current financial indicators that determine the state of the enterprise;
- the effectiveness of the organizational and management structure;
- the degree of progressiveness of the technology used;
- stability of cash flows;
- the degree of diversification of supply and marketing processes.
The factorial method is good for its complexity and abstraction from formal approaches based solely on the figures shown in the balance sheets and reports. The bad thing about it is that when using it, it is impossible to completely exclude the element of subjectivity inherent in all expert assessments.
Seven-factor model
The name of the method is conditional. There may be seven or less factors by which the investment attractiveness of a business is assessed, but in modern conditions the analysis for a going concern includes, as a rule, eight indicators:
- The amount of profit from the sale of products.
- The total amount of implementation.
- The size of current assets.
- The amount of short-term payables.
- The amount of accounts receivable.
- The volume of the company's credit liabilities.
- The amount of borrowed capital.
- The total amount of assets in monetary terms.
Many domestic and foreign methods for predicting investment efficiency are based on seven-factor analysis. At its core, it is a rating score that takes into account several of the firm's major economic indices.
For example, an indicative technique is included in methodological foundations assessing the investment attractiveness of the bank when issuing targeted loans aimed at expanding and modernizing the enterprise.
In general terms, the formula for calculating the integral index of investment attractiveness IIN looks like the product of several (for example, seven) coefficients:
In order not to tire the reader by re-decoding the components of this polynomial, we will consider them separately. They are not unique and are widely used in economics.
RP - implementation profitability. It is calculated by the formula:
OK - capital turnover:
TL - current liquidity of the enterprise:
КД - the ratio of accounts payable and receivable:
DC - the ratio of all the debts of the enterprise to the debts to it:
SP is the coefficient of the structure of liabilities:
FOR - the share of borrowed capital in assets:
The seven-factor model method objectively describes the current state of the enterprise and its financial prospects, which is very important for every investment company.
After multiplying all the components, the product (IIN) is obtained, according to the value of which the following conclusions can be drawn:
IIN more than 1 - high investment attractiveness, positive dynamics.
IIN is equal to 1 - average investment attractiveness, neutral dynamics.
IIN less than 1 - low investment attractiveness, negative dynamics.
Analysis by internal indicators
The method provides for the assessment of criteria for business performance based on:
- results of exploitation of available financial and physical resources;
- results of investment activities;
- financial solvency;
- the intensity of the use of personnel;
- overall profitability.
In fact, this method is similar to the previously described seven-factor model, but pays more attention to the rationality of management and the effectiveness of the applied organization scheme.
The integral indicator of attractiveness for investors is also calculated according to standard economic criteria, from which only internal criteria are selected - this is the main disadvantage of the method.
Comprehensive assessment method
The name also does not fully reflect the essence of the method. All existing methods of determining investment attractiveness to one degree or another are of a complex nature.
In this case, we mean the simultaneous assessment of the activities of the enterprise in the following areas:
- General analysis. It involves collecting information about the reputation of the firm, its dependence on supply and distribution channels, management structure and commercial strategy. The assessment is made in points according to the system adopted by the investing firm.
- A special analysis aims to determine the level of economic efficiency and the prospects for its increase as a result of investment.
- A special matrix model is built, which takes into account the initial, as well as predicts the intermediate and final results. This is followed by the phase of conducting a situational analysis according to several scenarios of the development of events with the construction of appropriate options for growth.
- The process of calculating activity indicators in the selected areas of development (operational, innovation and investment, etc.) continues.
- The analysis is completed by forecasting an increase in profitability and profitability.
As with the factorial method, before assessing the investment attractiveness of an enterprise, one should take into account the high degree of subjectivity of estimates. At the same time, the complexity of the approach provides a number of advantages due to the breadth of coverage of all possible foreseeable situations.
Regulatory analysis
As the name implies, the assessment of investment attractiveness is based on legal norms. The laws differ from country to country. In the Russian Federation, the main documents regulating the process economic analysis, serve:
- FSFO Order No. 16 "On Approval of Methodological Instructions for Analyzing the Organization's Financial Condition" dated January 23, 2001.
- Government Decision No. 367 “On Approval of the Rules for Conducting Financial Analysis by an Insolvency Trustee” dated June 25, 2003.
These and some other documents contain the main criteria recognized by state authorities as determining the financial success of economic entities. These indicators can be used to determine financial stability, liquidity, solvency, business activity and capital efficiency.
The specifics of assessing the investment attractiveness of the project
Investment attractiveness commercial project is determined by the ratio of the allocated resources to the likely benefits and risks associated with its implementation.
For an objective assessment of investment prospects, a system of indicators is used:
- NPV called net present value. The purpose of the parameter is to compare the return on the investment with the bank dividends that the depositor would receive if the funds were kept on deposit. If the difference is negative, there is no point in investing.
- IRR ( internal norm profitability). Calculation of this parameter allows you to determine a specific yield limit at which NPV = 0.
- Pay-Back Period - the time of return to the investor of all the amounts invested by him in the cumulative total.
- Discounted Pay-Back Period - the same indicator, but taking into account the current inflation index or bank discount rate.
Ideally, the purpose of assessing the attractiveness of a project should be a situation in which the investor is confident in the correct choice of the investment object. This is expressed in the following circumstances:
- the market value of the enterprise will maximize within the planned time frame;
- risks are taken into account and can be leveled;
- the size of the required resources is set correctly.
The methodology for assessing the commercial attractiveness of a project can be selected from a number of the above. The specificity, however, lies in the preference of expert approaches. The project can be venture, and then the likelihood of failure increases dramatically.
In any case, we are talking only about forecasting, and it is often impossible to rely on real data confirming the viability of an enterprise.
The package attached to the application, including the following documents, is able to convince investors of the expediency of investing:
- the investment project itself;
- Feasibility study (feasibility study) of the project;
- business plan;
- legal justification of the project on the basis of current legal regulations.
Calculations and arguments given in these documents must confirm:
- prospective financial stability of the enterprise based on the actual demand for a commercial product planned for production;
- optimal loading of capacities formed as a result of investment;
- no supply and sales problems.
Each successful feasibility study contains information on discounted net income, profitability index, method of dividend payment, payback period, expected risks and ways to minimize them.
conclusions
Actual methods of assessing the investment attractiveness of enterprises and projects are based primarily on subjective forecasts.
Investment attractiveness is an integral characteristic of the industry (enterprise, project) from the standpoint of development prospects, investment returns and the level of investment risks.
First of all, it should be noted that there is no single approach to assessing the investment attractiveness of enterprises. Each investor uses his own methods and approaches. There is still heated debate among researchers in this area of financial analysis about which approach is better. In this regard, it seems reasonable to consider as many different approaches as possible and compare them with each other.
There are three main groups of methods for assessing the investment attractiveness of enterprises:
1. Techniques based on the analysis of external information about the company (the so-called market approach). They assess exclusively changes in the market value of the company's shares and the amount of dividends paid. This approach prevails among shareholders, allowing them to calculate the effectiveness of their own investments in the company.
2. Techniques based on the analysis of inside information (the so-called accounting approach). They use accounting data such as profit or cash flow. This approach is preferred by accountants and financial professionals, since the data used for analysis can be easily obtained from traditional accounting records.
3. Techniques based on the analysis of both external and internal factors (the so-called combined approach). A classic example of a combined approach is the price earnings ratio (PER), a metric often used by analysts. stock market and investment managers.
1. Market approach to the analysis of the investment attractiveness of enterprises, as a rule, relies on the following indicators.
1.1. Total income for investments in the company's shares (total shareholders returns, TSR) - it is the income that a shareholder receives for a certain period of time during which he owns shares of a particular company. This ratio (in percentage) is calculated as follows:
, (105)
where Р 1 - the price of one share at the end of the period, P 0 - the price of one share at the beginning of the period, D - dividends paid during the period.
For example, if ABC's share price was at the beginning of the year and $ 2.2 at the end of the year, and dividends paid during the year were $ 0.2, then the company's TSR would be: investments in shares of ABC company amounted to 20% per annum. But how to determine whether it is a lot or a little? As a rule, for this it is necessary to analyze the profitability of investments in shares of other companies. If the average TSR for shares of other companies for the year under review was 30%, then it is obvious that the return on investments in shares of ABC is not very high. Conversely, with an average TSR of 10%, an investment in ABC shares will be considered quite attractive.
The TSR value can be broken down into two components - income due to the growth of the share price of CG and income due to the payment of dividends DY.
CG shows the percentage of growth over the period. While stock gains may seem like “unrealized” earnings, this “unrealized” earnings can always be turned into real money by selling the stock at a higher price.
DY is an indicator that is especially popular among stock market analysts. Analysts generally prefer businesses with a higher DY value.
Along with the obvious advantages, the described method for calculating the effectiveness of investments in company shares has some disadvantages.
Firstly. TSR is a relative indicator that shows the percentage of return on investment, and not the amount of return, Therefore, using TSR in certain situations can lead to poor decisions.
Which is more profitable, to invest 90 thousand dollars with a return on investment of 20% or 100 thousand dollars with a return of 19%? Most investors will prefer the second option, although from the TSR point of view, the first option is more preferable.
Second, TSR does not take into account the risk inherent in each investment. For example, one company took a high risk to generate more income, while another company took less income, but the risk was also lower. In this case, it is difficult to say which company was more efficient. The answer to this question depends on the willingness of a particular investor to take a certain risk to obtain the desired return on investment.
Third, the TSR value largely depends on which reference point is selected. The lower the initial share price, the higher the TSR value.
1.2. Market value added (MVA)... This indicator is calculated as follows:
MVA = market value of the company - used capital of the company
So, if the market value of the company is $ 50 million, and the capital used is $ 30 million, then the MVA will be $ 20 million.
Thus, MVA is the difference between the market value of the company (share price multiplied by the number of shares) and the value of the capital used (share capital plus long-term debt). At the same time, the capital used represents the investments attracted by the company, and market capitalization characterizes the efficiency of using these investments from the point of view of market participants. If the company pays dividends, then the MVA should not change, since both components of the equation will decrease by the same amount of dividends paid.
MVA, on the one hand, forces managers to strive to increase the market capitalization of the company, and on the other hand, managers are also forced to monitor the amount of share capital (i.e., to monitor the funds invested in the company). At the same time, the use of this indicator is difficult due to the following reasons:
In accordance with modern rules accounting many intangible assets companies remain unaccounted for or accounted for but unrealistic value. Among such assets are trademarks, licenses, the name of the company, its reputation, the availability of a highly qualified workforce, etc. At the same time, the market capitalization of a company largely depends on estimates of the value of just such assets and liabilities;
As a rule, assets are recorded in the balance sheet at their historical cost (purchase price). At the same time, if an asset was acquired several years ago, then its historical value may not coincide with its current value;
Company managers can manipulate the balance sheet values of assets and liabilities in such a way as to increase the MVA value.
1.3. Weighted average capital cost (WACC)... As a rule, enterprises use both their own and borrowed funds to finance investment projects. The difference between the two is as follows:
1. Borrowed funds do not change the ownership structure of the enterprise and do not affect the strategic control and operational management of the project.
2. Attraction of borrowed funds increases the risk of failure by the company to fulfill its obligations, which can lead to insolvency and the threat of bankruptcy.
3. The interest on the loan is paid from taxable profit and thereby reduces the taxable base. Dividends are paid to the owners from net profit, after all resources, the cost of which, according to the legislation, cannot be attributed to the cost of products (services), have been paid, and the investment needs of the company have been satisfied. Therefore, attracting loans, as a rule, is cheaper for an enterprise than financing from its own funds.
Thus, the use of borrowed capital increases the cash flow and at the same time increases the investment risk. The use of various sources of financing should be taken into account when determining the cost of capital for an investment project.
The weighted average cost of capital (an acceptable discount rate for financing an investment project) from various sources can be obtained by weighing the cost of different sources of capital by the share of these sources in the total volume of investment resources.
where r d is the cost of borrowed capital (interest on a loan), r e is the cost of equity capital (the rate of return required by shareholders), D is the amount of debt, E is the amount of equity capital, t is the income tax rate.
For example, you should determine the interest rate for an investment project. The ABC enterprise spends 2,040 thousand rubles on the project. own funds and 21,060 thousand rubles. takes on credit at 15% per annum. The income tax rate is 30%, the return on equity for the previous year was 8%. Let's apply the weighted average cost of capital:
Thus, the acceptable rate of return under these financing conditions is 10.3% per annum.
The weighted average cost of capital is used by investors to assess the performance of a company, taking into account the risks inherent in this type of business. It is also used for management analysis, when managers decide to invest in new activities or. to new projects. Only those projects are accepted that provide a higher return than the cost of capital.
The calculation of the cost of the company's capital is carried out in several stages. First, it is necessary to determine the structure of the capital involved in the company. Secondly, you need to calculate the cost of each component of the company's capital, Then the weighted average cost of the capital involved is determined.
2. Accounting approach to the analysis of investment attractiveness of companies can use the following indicators.
2.1. Net assets value (NAV)... The company balance sheet is used to calculate NAV. Some investors may consider this financial statement as the starting point for analyzing the value of the company. The company's net assets are calculated by reducing the company's assets by the amount of its liabilities. The reliability of the information contained in the balance sheet can be confirmed by an independent auditor.
However, as noted above, the information contained in the balance sheet may not reflect the real picture for the following reasons:
Some important assets are not included in the balance sheet (brands, highly skilled labor, etc.);
Assets are often accounted for at historical (purchase) rather than fair value.
2.2. Company cash flows... This approach to assessing the value of a company uses the information contained in another accounting statement - the statement of cash flows. Here the main indicator is the amount of funds received by the company from operating activities (cash flow from operations, CFFO). Some analysts also use a metric such as “free cash of a company”, which is CFFO minus the cost of acquiring and capitalizing on property, plant and equipment.
To determine the value of a company, analysts predict the company's free funds for several years ahead. These projections are then discounted (typically using the WACC as the discount rate) and their net present value is calculated. The net present value of the company's future cash flows calculated in this way is considered to represent the present value of the company.
The cash flows generated by the company appear to be a more objective indicator of the company's performance compared to the profit for the following reasons:
It is believed that cash flow values are more difficult to distort (as opposed to profit), although there is scope for cash flow manipulation;
Cash flows are a more sensitive tool for identifying and analyzing a company's liquidity problems.
2.3. Net profit... As a rule, analysts use net profit to assess the company's performance in the form of a coefficient Earnings per share (EPS)... This coefficient gives useful information for owners of stakes in various companies, as it shows what part of the company's profits comes from their stake. Sometimes, profit provides a more complete picture of a company's operations than cash flows.
2.4. Residual profit... Residual profit (sometimes also called economic profit) is an approach to assessing the performance of a company in which net profit is reduced by the cost of capital employed (in absolute terms).
Suppose ABC earned $ 250,000 in pre-tax and interest income for the year. The company used $ 2 million in capital to generate this profit. The weighted average cost of capital (WACC) for ABC is 10% per annum. Thus, the residual profit of the company will be equal to thousand dollars.
It is important to note that profit before tax and interest was used in this example, since the capital involved is usually made up of debt and equity. However, if net income is used, then borrowed capital must be excluded from the capital employed, and the cost of equity (return on equity) must be used instead of the WACC.
The use of the residual profit indicator is associated with certain problems:
Profit and capital employed may be deliberately distorted,
Equity involved may be underestimated if assets are carried at historical cost;
The risks inherent in investments in different enterprises and different sectors of the economy are not taken into account.
2.5. Accounted rate of return (ARR)... This indicator is similar in its economic content and calculation methodology with a static indicator of return on investment for a separate investment project. In calculating ARR, profit is divided by capital employed and the resulting percentage is compared to the company's percentage of cost of capital.
So, for the ABC company
The problems with using ARR are identical to those with residual income.
3. Combined approach to the analysis of the investment attractiveness of a company takes into account the following coefficients
3.1. Price / earnings ratio (PER) is the most common metric used by investors to assess the value of a company. This figure is calculated by dividing the market value of one share by the earnings per share (EPS) value.
For example, if ABC shares are worth $ 15 per share and EPS is $ 3, then
PER shows the payback period of an investment in a company's stock. That is, a PER value of 5 indicates that an investor, having bought the company's shares at a price of $ 15, can expect that the costs of acquiring shares will be recouped within 5 years. Of course, there is a certain degree of conventionality in this reasoning, since it is unlikely that the company's EPS will be the same for 5 years.
Analysts often use PER to predict the future price of a company's stock. To do this, the company's projected earnings per share are multiplied by the current PER.
So, for example, if the EPS is expected to be $ 4 next year, then with the current PER of 5, the company's share price will be $ 20.
The above calculations are based on the assumption that the current PER will remain unchanged next year. But if there is reason to assume the opposite, then the calculations can be changed as follows.
Let's say the PER for ABC. 5 is not in line with the industry average of 6. If the company's PER is expected to catch up with the industry average, then the target price for the shares will be no longer $ 20, but $ 24.
When evaluating the effectiveness of investments in stocks, it is necessary to carefully analyze the reasons for the deviation of the PER of a particular company from the industry average.
If the PER of a company is below the industry average (as in the previous example), then the reasons for this may be either that the company lags behind other companies in the industry in terms of its main indicators, or that the company is undervalued by the market and, therefore, is a good target for investing.
If the PER of a company is higher than the industry average, then the explanations for this can be as follows: in terms of its main indicators, the company is ahead of other companies in the industry, or it is overvalued and, therefore, investments in the shares of such a company will not bring a lot of income.
The advantages of using the described indicator include the following:
Since the analysis of the company's value is carried out using profit analysis, this indicator can be applied to companies that do not pay dividends (fast growing companies);
Information about the company's share price and earnings per share can be easily obtained from published reports;
When calculating the PER, discounting is not used, thereby simplifying the calculation method;
PER can be used to estimate the value of companies. To do this, the net profit of such a company is multiplied by the PER value of similar companies with a market quotation.
Among the disadvantages of PER, the following should be noted:
The use of coins in the calculations of profit can lead to distortion of the analysis results;
Typically, companies publish their performance information once a year - a few months after reporting date... This could cause the PER calculated on last year's data to become obsolete during the next reporting period and will not be considered. last changes in financial situation companies;
PER cannot be applied to loss-making companies.
3.2. Market capitalization to revenue ratio (price / sales ratio, PSR) This ratio is a modification of the PER and is calculated as the ratio of the company's market capitalization to revenue for the reporting year. The advantage of this ratio is that the company's revenue is a fairly objective indicator that is difficult to distort. However, PSR does not take into account the impact of a company's profitability on market capitalization. Two companies with the same revenue may have different profits (or even losses), and accordingly capitalization will also differ.
3.3. Enterprise value (EV)... IN recent times for analysis, company stock prices are increasingly using company value instead of market capitalization. This is due to the increasing role of borrowed capital as a source of financing for companies' activities, which leads to the incomparability of companies with the same operating performance, but with different levels of debt. Therefore, indicators calculated using market capitalization as the basis for evaluating a company (PER, PSR, etc.) do not allow the price of a company's shares to be estimated based on the share price of another company or a group of comparable companies. To obtain comparable values for the indicators described above, the value of the company value is used, calculated as the sum of the market capitalization of common and preferred shares and the market value of the company's debt.
It is easy to see that out of the large number of existing methods for analyzing investment performance, it is difficult to choose one universal one that is suitable for all companies. Each of the described techniques has certain advantages and disadvantages. When choosing one or another methodology, it is necessary to evaluate many factors, namely: the goals of the analysis, the availability of reliable information, the specifics of the business, company, etc. Typically, a company is assessed using several criteria.
Assessment of the investment attractiveness of a company is a complex process in which a mathematical calculation is to cast one of the elements. Much depends on the subjective assessments and experience of analysts.
In addition to the indicated indicators of the market value, other aspects of the investment attractiveness of the enterprise are also taken into account. These include:
Product attractiveness;
Personnel attractiveness;
Innovative attractiveness;
Financial attractiveness;
Territorial attractiveness;
Environmental attractiveness;
Social attractiveness.
Product attractiveness enterprises for any investor - This its competitiveness in the market. The competitiveness of products is also a multidimensional term of indicators, factors, prerequisites and final criteria. Below are the most significant ones.
Product quality level - compliance with various standards, availability of quality certificates, reliability, prospects, "behavior" of products by the consumer, compliance with fashion, etc. The investor may also be interested in the product quality control system and the costs of its operation.
Price level for the products of the enterprise, its correlation with the prices of competitors and prices for substitute goods.
Product diversification level shows the system of coefficients reflecting the versatility of the company . A potential investor is interested in which of the types of manufactured products is in the greatest demand on the market, what is the profitability of the manufactured products. Therefore, the level of diversification of products is referred to among the characteristics of its investment attractiveness.
A generalizing indicator of the competitiveness of products and, accordingly, its investment attractiveness is product price . Since the price is formed as a result of the interaction of supply and demand, it indirectly expresses competitiveness by comparing the cost of marketable products (supply) and products sold (demand).
When assessing the investment attractiveness of the company's products, it is also necessary to list the range of products manufactured: its "width", "depth" and "length". The "width" of the assortment is determined by the number of product groups. The “depth” of a product group is measured by the number of different products it includes. The "length" of the assortment is related to the total amount of goods produced by the enterprise. This is the number of groups multiplied by the number of products in each group, i.e. here we are talking about the most important characteristic, reflecting the scale of the enterprise.
Personnel attractiveness the enterprise is characterized by three components;
1. Business qualities of the leader and his team
2. The quality of the personnel core
3. Quality of personnel renewal in general.
Business qualities of the leader and his team. Many investors make investment decisions based largely on the quality of the management team. This is because the experience and skills of key managers significantly affect on the long-term development of any company. But for this reason, investors and lenders pay great attention to studying the capabilities of individual managers to work successfully in this business and the quality of building an internal management structure that should ensure maximum use of team resources.
When studying the business qualities of managers, investors pay attention to:
Key managers;
Board of Directors;
Supervisory Board;
Consultants and other professionals.
When assessing the quality of key managers, such business qualities of the leader and his team are taken into account, such as: the thinking of the leader, his psychological features, competence, ethical characteristics, his attitude to work, ability to make decisions, incentives, etc. The main qualities of a manager for an investor are competence and enterprise (the ability to think innovatively), teams are well-coordinated actions of well-chosen individuals.
Key managers playing a role in investor representation , include:
Decision-making managers - president, directors, heads of departments;
Key production managers - production manager, technical director, etc .;
Development managers, etc.
It is important for investors that the board of directors provides for a place for a potential investor, since they are usually interested in having control over management and influencing the strategic development of the company.
There are cases when the company's management prefers not to include outsiders on the board of directors, but their experience, connections or image can be very useful to the company. In such situations, the usual solution is to create a supervisory board, which has little or no legal power, but can provide significant assistance in the development of the company.
There is a misconception about consultants that only large companies need them. But highly qualified professionals have the opportunity to seriously help any business in such specific areas as: finance, tax planning, legal issues, etc. Moreover, consultants can do this at a higher level than the company's staff. The use of consultants can significantly improve the company's image in the eyes of potential investors.
Generalizing criterion for investment attractiveness personnel core of the enterprise is the proportion of highly qualified workers and specialists in the number of industrial and production personnel. When calculating this indicator, the dynamics of the personnel core of the enterprise is also taken into account.
Quality of staff renewal in general can be expressed by the refresh rate of the frames. This indicator reflects quantitative trends in the change in the staff.
Innovative attractiveness- this is the effect of medium-term and long-term investments in innovations at the enterprise. The innovative attractiveness of an enterprise is an important component of the investment attractiveness of an enterprise, since many investors associate investment prospects with innovations.
When evaluating innovative attractiveness, investors, as a rule, , take into account the presence of:
Production technical development strategies, the foundations of all other innovations;
Production financing programs from various sources : own funds, state and municipal budgets, bank and other loans;
Consistent policy of using accumulation funds at the enterprise.
For a direct assessment of innovative attractiveness, you need:
1. Selection of the system of indicators directly or indirectly characterizing the innovative activity of the enterprise.
2. Differentiated ranking of enterprises based on the grouping of selected indicators and determining the place by their sum.
3. Selection of a general criterion for express analysis. The following systems of indicators of the innovative attractiveness of an enterprise can be proposed:
a) structure of fixed assets:
The ratio of the accumulation fund to the value of fixed assets;
The ratio of the R&D fund to the value of fixed assets;
Attitude currency funds to the cost of fixed assets;
The ratio of long-term loans and borrowings to the value of fixed assets . When comparing the investment potential of several enterprises, a comparative table is drawn up, then, according to the sum of places received by each enterprise, a general ranking of the investment potential of enterprises is carried out.
b) the efficiency of using fixed assets;
c) sources of technical renewal of production;
d) the share of profit for the technical re-equipment of the enterprise. A generalizing criterion for assessing the innovative potential of an enterprise can be considered the indicator of the share of funds for technical re-equipment of production in net profit. The optimal level of this indicator can be considered a little higher than 0.3. If the value of the indicator of the share of funds for technical re-equipment of production in net profit is less than 0.3, the enterprise is at risk.
Financial attractiveness acts as the central component of the investment attractiveness of the enterprise. For any investor, financial attractiveness lies in minimizing financial costs and maximizing profits, i.e. in obtaining a stable economic effect from financial and economic activities. If this effect is unstable when investing, financial risk is inevitable.
We have discussed the indicators of financial attractiveness above.
Territorial attractiveness of the enterprise is a system of criteria for a geospatial position and development of an enterprise that is beneficial for the investor.
The territorial attractiveness of an enterprise for an investor is determined, first, by the macroeconomic position of the city or region where the enterprise is located in the national and international market economy; and, secondly, the micro-geographic location of the enterprise within the city.
When assessing the first, the investor takes into account the general investment climate in the region:
Social and political stability;
Development prospects economic region;
The level of infrastructure development in the region;
The development of the system of incentives for the investor (organization of licenses, tax preferences, municipal preferences, etc.)
The micro-geographic position of the enterprise is also assessed by the investor based on several criteria:
The transport coefficient shows the proximity (remoteness) of the enterprise from the main transport routes, the availability of access roads for the transportation of goods and employees of the enterprise;
The coefficient of distance from the city center characterizes the proximity (remoteness) of the enterprise from the city center, where the institutions are concentrated local government, various service commercial organizations, the most developed communal services and a network of trade and social and cultural services;
The price of land, which largely depends on the above criteria;
The coefficient of potential intensification of the territory of the enterprise is the saturation of the territory of the enterprise with fixed assets, which determines the impossibility of extensive and the need for intensive use of its industrial zone when organizing new industries;
The share of transportation, procurement and sales costs in the cost of production. This indicator can be considered as a resultant one, since it reflects the level of development of production cooperation (regional, interregional, international), the stability and rhythm of supplies, the choice of economical ways and means of delivery, the quality of storage facilities, the level of mechanization of loading and unloading operations, etc.
Environmental attractiveness of the enterprise is a multidimensional concept due to the complex nature of environmental problems. The environmental attractiveness of an enterprise is determined through:
Ecological attractiveness of the natural environment of the enterprise;
Environmental attractiveness of manufactured products;
Environmental attractiveness of the products manufactured at the enterprise.
All components of environmental attractiveness are governed by legal regulations and standards. Environmental standards define the permissible level of its contamination (for example, maximum permissible emissions). Product standards characterize the limit levels of the content of harmful substances in manufactured products. Technological standards are environmental specifications for technical means, equipment, technological processes, etc.
To one degree or another, environmental attractiveness affects other components of investment attractiveness.
On the attractiveness of products - the quality of products in accordance with environmental standards affects the volume of their sales.
To innovative attractiveness - through the level of nature conservation of technology at the enterprise.
Financial attractiveness - penalties, payments for environmental violations reduce financial attractiveness.
Territorial and social attractiveness - pollution of the territory affects the territorial attractiveness, as well as the social living conditions of workers in the adjacent neighborhoods.
Social attractiveness of the enterprise is the final criterion by which the investor judges the state of affairs in the enterprise where he is going to invest or is already investing his funds. The social climate at the enterprise serves as a criterion for the competitiveness of the enterprise, its prestige for employment, attractiveness for the investor. When analyzing the social climate at an enterprise, attention is paid to such characteristics as:
Working conditions
Organization and remuneration
Development of social infrastructure.
The analysis takes into account social investment indicators, which are based on monitoring deviations from standard or benchmark values.
The following indicators are usually taken into account:
Deviation of indicators of working conditions from sanitary and hygienic standards - negative values will entail the need for additional investments;
Deviation of the wage intensity of products from the average indicators for the industry or for related subsectors. Salary intensity is defined as the share of the wage fund in the value of marketable products;
Deviation of the average wage at the enterprise from the minimum consumer basket of the region.
Thus, it is obvious that the investment attractiveness of an enterprise is a complex characteristic consisting of individual parameters. It should be noted that not all of these parameters are created equal. Depending on the situation, one or another component of investment attractiveness will be given greater importance.
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