Plan of businesses (part 8): The evaluation of the project

After the study of the income and debits, the following part or section of a plan of businesses is the evaluation of the project, which describes to the development the realized financial evaluation to the project.

The objective of the part of the evaluation of the project is the one to show the reader who the project is profitable, as soon as time the investment will recover, and how much it is it hopes to obtain by her.

The part of the evaluation of the project would have to contain the following elements:

Period of recovery of the investment

The period of recovery of the investment indicates the period of time that is going to take to recover the inverted capital.

In order to find it, we took into account the investment from the project (study of the investment and financing) and the results from the projected flow of box (study of the income and debits).

If, for example, we have invested 1 200, and in the first year we have a cash flow of 400, in second year one of 500, and in third party one of 90, we can say that the period of recovery of the investment is of 3 years.

Return on the investment (ROI)

The index of return on the investment (ROI by its abbreviations in English), measures the percentage of the capital that is going away to obtain the being inverted in the project.

The formula of the index of Return On the Investment is:

ROI = ((Utilities - Investment)/Investment) x 100

For example, if the total investment of the project is of 2 000, and the total sum of the utilities obtained during the period of time in which the plan of businesses is projected is of 6 000, applying the formula of the ROI:

ROI = ((900 - 2000)/2000) x 100

It gives a ROI us of 200% or, said in other words, the project has a 200% yield.

TIR GO and

THEY GO and TIR are other used financial indices at the time of evaluating a project.

The Net Present Value (VAN) measures the gain of the project, when remaining the investment to the total of the future flows of money (which are updated through a determined rate of discount).

Whereas the Internal Rate of Retorno (TIR) is the maximum rate of discount that can have a project to be considered profitable.

In case the project includes besides the equity capital, the acquisition of a financial credit, for one better evaluation usually is divided GO and the TIR in GOES and economic TIR (for which the economic flow of box is taken into account), and in financial TIR GOES and (for which the financial flow of box is taken into account).

Soon we will be including a model of plan of businesses where we will show an example of the development of this part of the evaluation of the project.

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