Profit

Rapid assessment of investments from a series of articles "Simple economics" Simple method of estimating the rate of profit investments, which will be discussed below, is one of the oldest and most widely used before how the concept of discounting proceeds and costs gained universal recognition as the primary method of obtaining accurate estimates of investment (economic feasibility, and development feasibility studies, examination investment projects). Nevertheless, in due to the simplicity and illustrative, this method is widely applicable, but also applies in most cases, for rapid assessment of investments in the initial stages (the examination investment projects, economic feasibility, development, feasibility studies). Operational profit margins estimated average profit ratio (PN / 2) over the life of the project on the size of the investment (IC), provided that at the end of term implementation of the project analyzed all the capital costs will be written off, with a residual value (RV), it must be excluded. arr = pn / 2 (IC – RV) interpretative meaning of the simple rate of return is to analyze what kind of part of the investment cost comes in the form of profits within a range of planning. Comparing the estimated size of the simple rate of return with minimum or moderate level of projected profitability, the potential an investor can come to a preliminary conclusion about the need (economic feasibility, development feasibility studies, examination of investment projects). The terms of the main disadvantages of the operational rate of return: – ignoring fact that the value of money over time – the ambiguity of the choice of initial values of profit and investment payments in case of uneven distribution of cash flows during the study period of the project. Preference use of such a rough way, what is the assessment of the operational profit margin can be justified solely in terms of ease of computation, which determines the use of this indicator in the practice, the simplicity of the calculation is the main and only advantage of this indicator.

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