Financial analysis of projects Few of the major management decisions are so transparent that you can safely do without financial analysis, because the advantages are already obvious. Some managers outsource financial analysis entirely to accountants. But it's more likely

Connection of projects with strategy In the end, I would like to talk a little about where investments and investment projects are located in the structure of the company as a whole. I would outline the general logic of the birth and implementation of projects as follows. In short, we start from

Energy: Alternative Sources Are Not Enough As the world continues to develop and its population continues to grow, the demand for energy is becoming insatiable. Energy is needed by industry, transport, for domestic consumption (heating, lighting, refrigeration

Principle #6: Demonstrate the costs of alternative behaviors Now we'll turn our attention to the other side of the equation and try to identify competing behaviors and the costs that your target market might associate with them. Competition

Project Management “A project is a set of tasks or activities related to achieving a planned goal, usually unique and non-repeating.” Almost all managers are involved in project management. If operations are project oriented

Analysis of alternative investment projects

Assessing the economic efficiency of investments allows the economist to make a choice from several possible investment projects. One of the incentives that forces an enterprise to choose one or more from several promising projects is limited financial resources. Of all the criteria under consideration, the most acceptable for making investment decisions are the criteria NPV, IRR, P.I..

For the projects under consideration, A, B and C can be considered, since all efficiency criteria satisfy the requirements for them: P.I. > 1; PP less than 5 years; NPV > 0; IRR> 0.1. However, the best project will be project B, since it NPV IRR, P.I. more.

When making a decision, you can be guided by the following considerations:

1) it is recommended to choose the option with a larger NPV, since this indicator characterizes the possible increase in the economic potential of the enterprise (increasing the economic power of the enterprise is one of the highest priority targets);

2) it is also possible to calculate the coefficient IRR for incremental indicators of capital investments and income. If IRR > CC, then the incremental costs are justified and it is advisable to accept a project with large capital investments. The most preferred criterion is NPV.

Starting investments of projects:

Project A - 34 million rubles; Project B - 45 million rubles; Project B - 45 million rubles, which are designed for 5 years.

Let's consider the dynamics of cash flows and performance indicators of projects B and C, since these projects have the same starting investments.

Of the projects reviewed, according to all criteria for the effectiveness of the requirements placed on them: PI > 1; RR - less than 5 years; NPV > 0; IRR > 0.1, project B is preferred, and project C is rejected.

Analysis of the effectiveness of investment projects in conditions of inflation and risk

Evaluation of projects in conditions of inflation

When assessing the effectiveness of capital investments, it is necessary to take into account, whenever possible, the influence of inflation, because inflation distorts the results of analysis of the effectiveness of long-term investments. The simplest method is to adjust the discount factor to the inflation index. For practical calculations, the formula will look like

Where R- discount factor taking into account inflation; i- inflation index.

Let's consider the economic feasibility of implementing project B under the following conditions: the amount of investment is 45 million rubles; implementation period - 5 years; income by year (million rubles) - 34; 23; eleven; 9; 0; current rate of return (excluding inflation) - 12%; average annual inflation index - 11%.

We will evaluate the project without and taking into account inflation.

1. Without taking into account inflation:

N 34/1.12+23/1.254+11/1.405+9/1.574 - 45 = 30.357 + 18.341 + 7.829 + 5.718 - 45 = 17.245 million rubles.

Therefore, in the absence of inflation, it is advisable to accept the project ( NPV 0).

2. Taking into account inflation: (23%)

p = 0,12 + 0,11 = 0,23 (23%).

N 34/1.23 + 23/1.513 + 11/1.861 + 9/2.289 - 45 = 27.642 + 15.202 + 5.911 + 3.932 - 45 = 7.687 million rubles;

NPV 0, therefore, the project can be accepted.

Risk assessment of investment projects

The risk of an investment project is expressed in the deviation of funds for a given project from the expected. The greater the deviation, the more risky the project is considered. There are several approaches to assessing the risks of investment projects:

1) simulation model of risk assessment;

2) method of changing cash flow (method of reliable equivalents);

3) risk adjustment method of discount rate.

The implementation of a real investment project is associated with a certain amount of risk. An increase in risk is associated with an increase in probable income. Therefore, the greater the risk on a specific project, the higher the risk premium should be. This can be taken into account by adding a premium to the risk-free discount factor.

The risk-free discount rate is generally in line with government securities. Bonds, stocks, etc. are riskier.

Consider an investment project, the average rate of return is 12%. The expert-determined risk associated with the implementation of project A was 13%, project B - 16%, and with the implementation of project C 17%. Project implementation period is 5 years. Assess the effectiveness of projects taking into account risk

Assessing the effectiveness of projects taking into account risk

Project B with great NPV is considered preferable.

Projects with lower indicators are rejected - these are A and B.

Topic 7. Alternative investment projects.

Alternative investment projects are compared in terms of commercial and budgetary efficiency. The most important characteristic of the commercial efficiency of investment projects is the payback period (period), and budgetary efficiency is the ratio of the volume of budget revenues to the volume of budget allocations.

During the preliminary examination, the financial condition of the applicant is analyzed, the reliability of the data is checked, and a preliminary financial assessment of investment projects is given. The results of the preliminary study are the basis for conducting a comprehensive examination, which implies a financial and economic assessment of the project itself. At this stage, an analysis of project risks and the reasons for their occurrence is also carried out, and risk insurance measures are developed. At the same time, project financing schemes and alternative options are being developed, and the initial data for the project is being adjusted. If necessary, independent experts and specialized firms can be involved at each stage of the examination. The examination of particularly significant projects is carried out with the involvement of the Scientific Expert Council of Aviabank, the activities of which are regulated by the Regulations on the Scientific Expert Council. The Council makes recommendations on determining the scientific and technical level and commercial viability of the projects it considers.

Ranking of real investment projects under consideration by risk level. A generalized comparative assessment of alternative investment projects by risk level is carried out in two ways

The equipment can also be used in alternative investment project B, and within the same period, i.e. until completely worn out. The main indicators of Project B, calculated on the condition that the equipment is provided free of charge, are

Alternative investment projects, in accordance

Alternative investment projects are compared in terms of commercial and budgetary efficiency.

Example. The company's experts evaluate the profitability of two alternative investment projects that can be implemented over the next year using the indicators given in table. 6.1. Let's estimate the expected profitability of projects. Using (3.1), we find for the first project

The principle of positivity and maximum effect focuses on the implementation of those projects that provide a positive effect, and when comparing alternative investment projects, preference should be given to the project with the greatest effect value.

The method based on finding the Tb allows the designer (constructor, etc.) to calculate several such points, taking into account alternative investment proposals resulting from the presence of different design capacities or technological processes, machine designs, and equipment. Changes in technological processes can have a significant impact on variable costs, since, for example, more advanced and therefore more expensive technology usually leads to lower unit variable costs, especially related to labor costs. In turn, significant changes in production volumes can cause an increase (decrease) in fixed costs. It is possible and obvious to find T. b. graphically by finding functional connections using the above equations. The point of intersection of two lines (for example, y = ax + buy = px) will be the desired T.b. Break-even analysis is also a useful tool for financing investment projects (financial planning). So, for example, in order to ensure annual repayment of a loan (loan, credit), you can calculate additional T.b., but taking into account interest rates.

Alternative investment projects are a means of solving problems facing an enterprise and achieving investment goals. In this case, it is necessary to make a selection of one or more projects based on certain criteria. Usually, alternative projects are compared one by one with each other and the best one is selected in terms of profitability, low cost and safety for investors. For this, various formalized and informal methods are used. Decision-making is complicated by factors such as limited financial resources, the presence of investment risks, etc. The assessment of long-term projects for which the probability of achieving the forecast is low is especially labor-intensive.

At the stage of the official presentation of alternative investment projects, a detailed selection of information is carried out that is more thorough than that used during the initial selection. This information should be more objective and reliable. Many enterprises have developed a standard procedure for presenting investment projects. As a rule, the project initiator, when preparing an official proposal, fills out a set of documents according to a certain form and highlights there the possible options for his project, which seem most preferable to him after the initial assessment. Typically, deadlines are set within which proposals at enterprises are accepted for consideration.

One of the important components of the efficiency of an economic system is the efficiency of capital investments. It is expressed by the ratio of the resulting effect to the capital investment that caused this effect. The efficiency of capital investments is measured by a set of indicators, which includes the overall effect of capital investments, their rate of return, payback period, comparative efficiency, etc. Indicators of the economic efficiency of capital investments are used to compare alternative investment projects and select the optimal project.

Example It is necessary to assess the level of financial risk for an investment operation using the following data; two alternative investment projects (project A" and project B") are presented for consideration with the probability of expected income presented in table. 3.2.

The final selection for the implementation of individual alternative investment projects is carried out taking into account all three criteria based on the priorities determined by the enterprise.

In general, DEA technology is an effective comparative analysis tool for independent or weakly interdependent projects. However, it should be noted that it is insufficiently sensitive when forming estimates in the context of a comparative analysis of objects of various scales and the limited possibility of application when forming investment programs consisting of highly related projects. In addition, the presentation of generalized inputs (outputs) in efficiency ratios as a linear combination of all inputs (outputs) is a significant simplification from a practical point of view. Building the models themselves and giving them meaningful meaning (as well as meaningful evaluation of the results) in each specific case is difficult without the involvement of accumulated practical experience and knowledge of experts in the relevant subject area. The use of DEA technology for selecting projects during investment analysis can be very productive at the final stage of selection, when a financial and economic analysis of each project has been carried out, many alternative projects have been identified that meet the required efficiency criteria, and it is necessary to select the best of them based on a set of criteria. At the stage of preliminary selection of investment projects for further analysis, it is advisable to use simpler (less labor-intensive) methods.

If the price of capital is outside the Fisher point, then the NPV and 1RR criteria give the same results when evaluating alternative investment projects; if the price of capital is less than the Fisher point, then the NPV and IRR criteria contradict each other.

Rank alternative investment projects A and B

According to the type of complementarity in the presence of group relations between projects (independent investment projects, interdependent and interdependent, additional, alternative).

Basic financial criteria. Financial analysis of industrial investments mainly consists of measuring (evaluating) the final financial results of investments - their profitability for the investor. This task is faced both at the stage of the initial analysis of the financial “attractiveness” of the project, and when developing a business plan. A negative conclusion usually gives grounds to refuse further, more thorough and in-depth study of the project. Without calculating such measures, it is impossible to compare alternative investment projects. Of course, when deciding on the choice of an investment object, other criteria are taken in addition to financial ones. For example, the environmental consequences of the project, the possibility of creating additional jobs, the development of a production base in the area, etc. In this chapter, the discussion is limited to financial criteria only.

The discount rate should include, regardless of the type of investment, the minimum guaranteed level of return,

Projects are called alternative (mutually exclusive), if the implementation of one of them makes it impossible or impractical to implement the others. When considering several alternative projects at the same time, it is important to take into account the relationships between them. The combined effect of the implementation of several independent projects is equal to the sum of the effects of the implementation of each of them. Most often, alternative projects are projects that serve to achieve one and the same goal, but of the alternative projects only one can be implemented.
Projects are called mutually independent, Projects are called independent if, within the conditions under consideration, the acceptance or refusal of one of them does not in any way affect the possibility, feasibility and effectiveness of them. The effect of the implementation of each of the independent projects does not depend on the implementation of others. The joint effect from the implementation of several independent projects is equal to the sum of the effects from the implementation of each of them

Dependent Project– An individual entrepreneur whose expenses or income depend on the expenses or income from another project. Projects are complementary if for some reason they can only be accepted or rejected at the same time. The reason is that it is impossible to achieve the set goals by implementing only some of these projects. Complementary projects can be combined into one project.

Let's give the following example: a project that requires the use of a one-of-a-kind resource, such as a specific piece of land. In such cases, the firm must select the project with the highest NPV Some firms, however, compare projects according to their IRR and this system may run counter to the need to maximize shareholder wealth.

Let's say you have a piece of land and two alternative uses for it. You could build an office building on it, which would require $20 million in initial costs, or a parking lot, which would require $10,000 in initial costs. If you build an office building, then (according to your calculations) you can sell it in a year for $24 million and your IRR will thus be equal to 20% ($24 million - $20 million / $20 million). If you turn this piece of land into a parking lot, your annual cash flow is calculated to be $10,000 in perpetuity. IRR for car parking will thus be 100% per year. Which project is better to choose?

Although IRR car parking above, you will not necessarily want to choose this project because at any cost of capital below 20% per annum NPV there is still more office building. For example, with a cost of capital of 15%, NPV office building would be $869,565, while NPV parking lot - $56,667. Thus, with a cost of capital of 15%, if the office building project is accepted, shareholders will benefit.

Rice. 6.3 shows us NPV both projects as a function of the cost of capital. Discount rate used for calculation NPV project (cost of capital of the project), is plotted on the horizontal axis, and NPV- along the vertical. The graph clearly shows that a discount rate of 20% per annum is the critical transition point" for two mutually exclusive projects. For any discount rate above 20% per annum, the car park has a higher NPV, and at a rate below 20% higher NPV will be near the office building.

To better understand why IRR is not an appropriate decision criterion when considering mutually exclusive projects, note that IRR the project does not depend on it scale. In our example, the car park has a very high IRR but the scale of this project cannot be compared with the scale of an office building project. If the car park project were more expensive, its implementation could result in a higher NPV than building an office building. So, let's assume that the parking lot project requires an initial investment of $200,000 to build a multi-story facility and that annual net cash receipts will be $200,000 per year indefinitely. NPV The amount of built car parking would now be 20 times larger than before.

Initial Key Points

From the position of the management personnel of the enterprise, investment projects can be classified in a more differentiated manner than was done in Chapter 2 on the following basis:

Type of expected income - cost reduction, additional income from expanding traditional production and technologies, entering new markets, expansion into new areas of business, reducing the risk of production and sales, social effect; "

Relations of interdependence - mutually concluding (alternative) projects, relations of complementarity, substitution, economic independence;

Type of cash flow - ordinary, extraordinary. Two analyzed projects are called independent if the decision to accept one of them does not affect the decision to accept the other.

Two analyzed projects are called alternative if they cannot be implemented simultaneously, i.e. accepting one of them means that the second project must automatically be rejected.

Projects are interconnected by complementarity relationships if the adoption of a new project contributes to growth in one or more other projects.

Projects are interconnected by substitution relationships if the adoption of a new project leads to a slight decrease in income from one or more existing projects.

A cash flow is said to be ordinary if it consists of an initial investment made at one time or over successive base periods and subsequent cash inflows. If inflows of funds alternate in any order with their outflows, the flow is called extraordinary.

Investment projects differ in the degree of risk: the least risky projects are carried out under government orders; the most risky projects related to the creation of new industries and technologies.

Administration of investment activities includes the following stages: planning, promotion, project implementation, control, evaluation, analysis of results.

Critical points in the capital budgeting process are: forecasting sales volumes taking into account possible demand for products (since most projects are associated with additional product launches); assessment of cash inflows by year; assessment of an acceptable price of capital, which is also used as a discount factor.

Analysis of the possible capacity of the product sales market, i.e. forecasting sales volume is extremely important, since its underestimation can lead to the loss of a certain share of sales, and overestimation can lead to ineffective use of the production capacity introduced under the project, i.e. to the ineffectiveness of the investments made.

The price of capital raised to finance a project may change (usually upward) due to various circumstances. This means that a project accepted under some conditions may become unprofitable under others. Different projects react differently to increases in the cost of capital. Thus, a project in which the bulk of the cash inflow falls in the first years of implementation, i.e. reimbursement of investments made is carried out

more intensively, less sensitive to the rise in price for the use of sources of funds.

Investment projects analyzed during the capital budgeting process have a certain logic:

Most often, the analysis is carried out by year;

It is assumed that the entire investment is made at the end of the year preceding the first year of cash inflows generated by the project;

The inflow (outflow) of funds takes place at the end of the next year;

The discount factor used to evaluate projects must correspond to the length of the period underlying the investment project (for example, the annual rate is taken only if the period is a year).

Project evaluation and analysis methods fall into two categories:

1) based on discounted estimates;

2) based on accounting estimates.

The use of methods for assessing and analyzing projects involves a multiplicity of forecast estimates and calculations used. The longer the project, the more uncertain and risky the cash flow in the last years of its implementation becomes.

Project evaluation criteria

The main criteria used in the evaluation of investment projects are:

Net Present Effect (NetPresent Value-NPV);

Return on Investment Index (ProfitabilityIndex-PI);

Internal Rate of Return-IRR;

Modified Inter-nalRate of Return-MIRR;

Payback period (Playback Period - PP). The NPV criterion shows the following:

if NPV if NPV = 0, then if the project is accepted, the welfare of the enterprise owners will increase.

The PI criterion characterizes income per unit of cost; It is this criterion that is most preferable when it is necessary to organize independent projects to create an optimal portfolio in the case of an upper limit on the total investment volume.

The IRR criterion shows the maximum level of costs that can be associated with a given project, i.e. if the price of capital raised to finance a project is greater than the IRR, then the project can only be completed at a loss, hence it is unacceptable.

The MIRR criterion is a discount factor that equates the present value of cash outflows (investments) and the accumulated value of inflows, and the operations of discounting outflows and increasing inflows are performed using the price of the project's capital.

The PP criterion shows the number of base periods over which the original investment will be fully recovered from the cash inflows generated by the project. If the base period is a year, most often the calculation is carried out by year, but a fractional part of the year can also be allocated if we abstract from the initial assumption that cash inflows occur at the end of the year.

The NPV criterion reflects a forecast assessment of changes in the economic potential of an enterprise in the event of the adoption of the project under consideration and is additive in the spatio-temporal aspect, i.e. The NPV of different projects can be summed up to find the overall effect.

The IRR criterion shows only the maximum level of costs that can be associated with the project being evaluated, in particular, if the IRR of two alternative projects is greater than the price of the sources of funds attracted for their implementation, then choosing the best one according to the IRR criterion is impossible. This criterion does not have the property of additivity. For extraordinary cash flows, IRR can have several meanings.

The NPV criterion involves discounting cash flow at the price of the project's capital, and the IRR criterion - at a rate numerically equal to IRR.

When calculating NPV, as a rule, a constant discount rate is used, but in some circumstances it is possible to use discount factors individualized by year.

Unlike the IRR criterion, the MIRR criterion allows you to analyze extraordinary cash flows.

The PP criterion does not take into account the influence of income from recent periods that go beyond the payback period. It does not allow distinguishing between projects with the same amount of cumulative income, but with different distributions over the years. This criterion does not have the property of additivity. Unlike other criteria

b. Popov E. M., Lyapunov S. I.

The RR method allows one to make estimates (albeit rough ones) of the liquidity and riskiness of the project.

The criteria NVP, IRR, PI, CC are connected by obvious relationships:

if NPV> O, then IRR > СС and PI > 1;

if NPV ifNPV= 0, thenW? = ССiР1= 1,

where CC is the price of capital attracted to implement the project.

When analyzing alternative projects, the criteria NPV, PI, IRR, MIRR may contradict one another, i.e. a project accepted according to one criterion may be rejected according to another criterion.

Two main reasons determine possible contradictions between the criteria:

1) the scale of the project, i.e. elements of cash flows of one project differ significantly (by one or several orders of magnitude) from elements of another;

2) intensity of cash flow i.e. whether the main share of total cash receipts falls primarily on the first or last years of the project's life.

The NPV criterion is the most universal and preferable when analyzing investment projects, since it characterizes the possible increase in the welfare of the owners of the enterprise.

Its main drawback is that it is an absolute indicator, and therefore it cannot provide information about the so-called project safety reserve.

What this means is: If there is an error in the cash flow forecast, how likely is the project to go from profitable to unprofitable?

Information about the project's safety reserve is provided by the IRR and PI criteria. Thus, other things being equal, the greater the IRR compared to the cost of capital for the project, the greater the safety margin.

There are also possible projects that are only costly in nature, i.e. have no impact on cash flow. In this case, the same criteria apply, only in relation to the flow characterizing current costs by year.

To analyze projects, the MRU schedule is often used as a function of the price of capital. This chart:

Represents a nonlinear relationship;

Intersects the y-axis at a point equal to the sum of all elements of the undiscounted cash flow, including the amount of the initial investment;

Intersects the x-axis at the point corresponding to the project’s IRR;

May have multiple intersection points for extraordinary flows.

The Fisher point is a boundary point on the x-axis of the NPV graph, dividing situations captured by the NPV criterion and not captured by the IRR criterion.

If the price of capital is beyond the Fisher point, then the NPV and IRR criteria give the same results when evaluating alternative investment projects. If the price of capital is less than the value at the Fisher point, then the NPVn IRR criteria contradict each other.

The value at the Fisher point is numerically equal to the IRR of the incremental flow, i.e. flow, composed of differences in the corresponding elements of flow streams. To find it, it is necessary to draw up a hypothetical project (incremental flow) and determine the IRR of this project.

For comparative analysis of projects of various durations, methods of least common multiple, infinite repetition of compared projects, and equivalent annuity are used.

In conditions of inflation, either the forecast cash flow or the discount factor is adjusted.

Analysis of investment projects under risk conditions is carried out using one of the methods: risk-free equivalent or risk-adjusted discount rate.

Optimization of the capital budget takes place whenever, for some reason, the size of investment is limited from above.

Investment Opportunity Schedule (IOS) - a graphical representation of the analyzed projects, arranged in order of decreasing internal rate of return IRR.

Marginal Cost of Capital (MCC) chart is a graphical representation of the weighted average cost of capital as a function of the volume of attracted financial resources.

The value of the marginal price of capital of the indicator is used as an estimate of the minimum acceptable return on investments in projects of medium risk.

Depending on the type of constraint, the budgeting process can perform spatial or temporal optimization.

Examples of making a decision to invest in a project

Task 1. Compare two business projects according to NPV, IRR and RR criteria, if the cost of capital is 13%:

A 20,000 7,000 7,000 7,000 7,000

B 25,000 2,500 5,000 10,000 20,000

Task 2. The amount of required investment for a business project is 18,000 dollars. USA, estimated income: in the first year - $1,500. USA, in the next 8 years - $3,600 each. USA annually. Assess the feasibility of accepting the project if the cost of capital

Task 3. The amount of investment is 1 million rubles; forecast estimate of income generated by year (thousand rubles): 344; 395 - 393; 322.

Calculate the values ​​of IRR AND MIRR if the price of capital is 10%

Task 4. The company intends to invest up to 65 million rubles. next year. The divisions presented their proposals for possible investment (in million rubles). Project Investment size IRR NPV A 50 15 12 B 35 19 15 C 30 28 42 D 25 26 1 E 15 20 10 F 10 37 11 G 10 25 13 I 1 18 0.1 Select the most acceptable combination of projects if the criterion is used :

a) internal rate of return (IRR);

b) net present value (NPV);

c) return on investment index (PI).

Answers to problems

1. For the project: AW= 821, IRR = 15%, RR = 2.6 years.

2. The project should be accepted.

3. RR = \1%,MIRR = 14%.

4. a) F+ C + D; b) C + B; c) C + G + F+ E.

Determining the investors' share in the project's profits

An effective business idea, when implemented, leads to sufficient expected profit for both the enterprise and the investor. The general model for determining the shares of the enterprise and the investor in the overall rate of profit can be as follows: CI + KP = OK; (4.1) PI + PP = OP; (4.2) PI: KI > Ltsh; (4.3) PP: KP > Achtf, (4.4) where KI is the investor’s capital; kp - enterprise capital; ok - total capital intended for the implementation of business ideas (OK - KI + KP); pi is the investor's profit; pp - enterprise profit; op - total profit to be distributed among the participants of the business project (OP - PI + PP); Ml and is the rate of return on the investor's capital; - rate of return on the capital of the enterprise. Taking into account (4.1) and (4.2), we can write:

Nou = OP: OK,

where Nou is the general rate of profit sufficient for the enterprise and the investor from the implementation of a business idea. From conditions (4.1)-(4.4) we can derive an equation for determining the shares of the investor and the enterprise in the overall rate of profit:

NmxdM + NmxdKnZNQn.

Hence the investor's shares (^iop "(Mim x dm): JV0„; ^pop" (Msh x kp): Won.

where u/ki is the investor’s share of capital;

dKU - share of the enterprise's capital. Typically, an enterprise is faced with a situation where there is not one, but many business ideas. Which one is optimal and can bring maximum profit? According to the business planning model, this is the idea for which the objective function is valid:

Thus, from a variety of options for implementing a business idea, one is selected that, given the total capital and a sufficient rate of return for the investor, is capable of bringing the maximum total profit. This means that there are such effects using

shares of common capital, which are not subject to distribution between the investor and the enterprise, but belong entirely to the enterprise. In other words, in the course of implementing a business idea, an enterprise improves management organization, increases the efficiency of supply and sales, and develops know-how. These additional sources of income usually serve as the basis for rewarding initiators of original business ideas and stimulate innovative business ideas.

Accounting for monetary and financial factors

In many cases, project financing requires both local and foreign currency. Many non-convertible currencies have higher inflation rates than convertibles. Foreign investors and bankers prefer to read and analyze project financial data expressed in internationally recognized monetary units.

When financial institutions become interested in the financial side of a business project, it is necessary to take into account the need to agree with them on the choice of monetary unit that should be used to present financial data. In effect, this means that all local costs (mostly in non-convertible monetary units) must be converted into agreed international (freely convertible) units.