Investment:

significant one-shot expenditures expecting long-term stream of benefits in the future Economic Value Added:difference between return on capital and cost of capital Investment Strategy:selection of investment goals and choice of alternatives how to achieve the goals

INVESTMENTS

Investments

Typical features of an investment project:

• long-term time horizon• higher risks• capital intensive• requires good planning

- strategy - return on investment - feasibility - financials - time - capacity

Investment Strategy

Factors influencing the investor during his decision making:

• Expected return on investments• Expected risk• Expected impact on liquidity

Types of Investors a Strategies

Types of investors:• aggressive• conservative

Types of strategies:• profit maximization• cash flow maximization• investment maximization (growth strategy)

EVA (Economic Value Added)

Vd return on capital achieved (%)

Vp return on capital expected (%)

K total capital (CZK)

(Vd - Vp) * K100

EVA =

INVESTMENT PROJECTS

Investment Project:

investment at the stage of planning or implementation Conventional Cash Flow:stream of cash flows when an initial cash outflow is followed by a stream of cash inflows Feasibility Study:document summarizing strategic, financial, technical a business information needed for go / no-go decision making

Categories of Investment Projects

• By accounting standards:• financial• tangible• intangible

• In respect to the business development• expansion• renewal• regulatory - work safety

- environment- new regulations

Categories of Investment Projects

• By interference• incompatible (mutually exclusive)• independent• complementary

• By cash flow• conventional − initial cash outflow(s) is(are) followed by

a stream of cash inflow(s) • unconventional − secondary investments are needed

during the project existence (landscape re-cultivation, general repairs, etc.)

Categories of Investment Projects•By substance• new equipment • new product (set of development activities)• new organizational structure• new company (acquisition project)• new legislation• new markets, new territories

•By historical existence• green field − doesn't interfere with other activities

in the company • in a well-established company – usually there exist

some historical ties, influences, and interests

Phases of Investment Process• Pre-investment phase

• project identification • feasibility study• go / no-go

• Investment phase• establishment of legal, financial and organizational

base• technological documentation• suppliers• human resources• trial run, debugging

• Operational phase

Project Identification

• Business environment identification• supply of products, raw materials, services, capital, HR• new technologies• impact of legislative, political a economical development

• Preliminary selection• monitoring of possibilities• evaluation of attractiveness of the opportunity• preliminary estimate of return and profitability

Evaluation Technques

• Static• average annual profit (total profit/time)• average payback period (total investment exp/avg annual income)• average rate of return (avg annual income/total investment expenses)

• Dynamic (will be discussed next semester)• NPV (Net Present Value)• IRR (Internal Rate of Return)• PP (Paybeck Period)• PI (Profitability Index)