Since investments are investments in capital, and capital is a resource that can generate income, every investor is primarily interested in the answer to the question, what will be the effectiveness of the investment, how much profit will each invested ruble bring.
Then, according to the definition of efficiency, investment efficiency represents the ratio of profit to the amount of invested capital.
In practice, the following methods for assessing the economic efficiency of investment projects are used: simple (static), based on a comparison of accounting data; complex (dynamic), based on a cash flow discounting model, since they take into account the time factor and are focused on assessing the value of the company.
TO simple (statistical) methods most often include the calculation of a simple (accounting) rate of return (return on investment) and the payback period (return period) of investments.
Index simple rate of return calculated as the ratio of net profit (NP) for the year to the total volume of investment costs (TO 0):
An investment project is considered effective if its level of profitability is higher than that taken as the base, i.e.
Epr > Ebas.
Another indicator that belongs to the “simple” group is payback period , or return period. It is calculated as the ratio of initial costs (TO 0) to the amount of annual net profit (NP) and depreciation charges (A), i.e.
This indicator allows you to understand over what period of time the invested capital will pay off due to the income received. An investment project is considered effective if its estimated payback period is less than the value taken as the basis for comparison.
The use of this simple calculation method is due to the relative simplicity of calculating indicators and its low cost. The main disadvantage of this method of assessing the economic efficiency of an investment project is its disregard for the time factor.
The fact is that when calculating the efficiency (profitability) of investments, it is necessary to take into account the fact that there is a time gap between the moment of making investments and obtaining results from them. This period of time is called time lag. In the practice of calculating the effectiveness of investments, taking into account the time factor is manifested in the fact that it is necessary to determine how much previously made investments “cost” at the present time or how much today’s investments will “cost” in the future. These questions are answered using the compound interest formula. Let us illustrate this formula with the following example.
Let's say an investor invested in a bank an amount equal to TO 0. The bank promises a deposit rate of E. Then by the end of the first year the capital should give (if everything goes as it should) an increase equal to TO 0E. The total amount of capital at the end of the first year will be
By the end of the second year, the total amount of capital
Therefore, for P year
Hence, if the quantity is known TO n , That
Using the coefficient (1 + E) n the amounts of all receipts and payments are brought to the same initial point in time and price scale.
If it is necessary to bring the volume of current investments to a point in time in the future, the amount of investment must be multiplied by a factor (1 + E) n. If it is necessary to bring the value of future income or expenses to the present time, it is carried out discounting – the amount of expected income is divided by this coefficient. In this case, the multiplier is called discount factor.
Complex (dynamic) methods provide for a comparison of current and future expenses and income, i.e. are based on determining cash flow taking into account the time value of money. This allows you to evaluate the effectiveness of the investment project for the entire calculation period (calculation horizon), or, in other words, for the entire period of the project, as well as select the best option or the most profitable investment project.
Selecting the best investment option can be done using one of the methods outlined below.
Method of lost opportunities or minimal losses from freezing
By investing money in a particular project or project option, the company refuses other possible investment options. The income lost due to this is called costs of lost opportunities, the value of which can form the basis for calculating the estimated rate of return. In economic practice, calculating the effectiveness of a project is complicated by the fact that capital investments, as a rule, are made not immediately, but in parts. For example, it is not necessary to have the entire amount when starting to build a house. First, money is allocated for the zero cycle, then for the construction of walls and roofs, and finally for finishing. As long as construction is underway, the money invested in the building does not generate income, since the building is not completed. They are, as it were, “torn out” from the circulation of capital, lying motionless, “frozen.” In this regard, the amount of reduced capital investments is calculated
Where T - number of investment periods (years); K i – capital investments of the i-th period (year); E – rate of return.
The difference between the reduced and estimated capital investment is called losses from "freezing ". Discount rate ( E ) represents the minimum rate of return on capital at which the investment project will be effective; its value depends on the structure of the capital attracted for the implementation of the project, taking into account the degree of risk of the project itself. The choice of the best option is carried out according to the criterion of minimum losses from freezing.
In the group of dynamic methods, the most widely used calculations are also the following indicators: net present value (NPV), or net present value (net present value). NPV ); internal rate of return (profitability) (IRR, internal rate of return – 1RR), profitability index (ID, profitability index – PI), payback period ( T ok, payback period – PP).
Net present value investment project has other names - net present value, net present value, net present value, etc. The point of the assessment is to determine how much the discounted cash inflow for the billing period is greater than the investment. The NPV calculation assumes that the firm sets the minimum acceptable rate of return (E) at which investments can be considered effective. This "specified" interest rate is called the firm's estimated or "subjective" interest rate. Investments can be made when the net present value is positive or equal to zero. Net present value is the difference between the current and discounted (based on the calculated interest rate) value of investment income (investment value). In general, the calculation formula is as follows:
Where t T (t = 1, 2, ..., 7); Дt – cash inflow at the t-th step of calculation; you can choose both profit and the coverage amount as this indicator (see I, 4.2); E – rate of profitability; И0 – initial investment size.
If the initial investment is made over a number of years, the formula will take the form
where Иt – investment costs in t-m calculation step.
Moreover, if NPV > 0, the implementation of the investment project is advisable; ChTS< 0 – инвестиционный проект неэффективен; ЧТС = 0 – инвестиционный проект нейтрален.
Net present value is the value calculated as the difference between discounted net cash inflows and investment costs for the entire period of implementation of the investment project at a fixed, predetermined rate of return that determines the amount of the discount. This indicator is calculated in monetary units (rubles and other currencies).
The main advantage of this calculation method is that it takes into account the time value of money, risk, the estimated period for the implementation of the investment project, and makes it possible to summarize the NPV for various projects and reflect changes in the value of the company. The main disadvantage is the impossibility of comparing several investment projects with different amounts of initial investment. In addition, the NPV does not determine the period over which the investment will pay off. Nevertheless, the NPV indicator is recognized as the most reliable in the system of performance assessment indicators.
Method for determining the internal rate of return on investment
The IRR indicator has other names - internal profitability, internal rate of return, etc.
Internal rate of return- this is the calculated value of the rate of profitability at a given enterprise, which it considers for itself to be the minimum possible, a certain maximum level of profitability. Mathematically, this means a discount rate at which the total present value of income from investments made is equal to the cost of these investments, in other words, a discount rate at which NPV = 0.
This method allows you to evaluate the effectiveness of capital investments by comparing the internal (marginal) rate of return on investment with the effective interest rate.
In other words, the company will consider investment projects that have profitability, the profitability of the project (E) will be greater than the minimum level of profitability accepted by it.
The main advantage of this indicator is that it allows for a comparative assessment of different investment projects, including investing in financial instruments (deposits, securities, etc.).
The disadvantages include: the complexity of calculating the indicator, its unsuitability for calculation in cases where cash flows are extraordinary, and the fact that this indicator does not take into account the scale of the investment project.
Investment return index
In another way, this indicator is called the investment profitability index. However, this indicator has nothing to do with indices, since it is calculated as an indicator of the rate of return. At the same time, profits and investments are determined for the entire billing period, and therefore have a discounted form. In general, the formula for calculating ID is as follows:
Where t – number of a private step in the calculated time period T(t = 1, 2, ..., T); D t – cash inflow at the t-th calculation step; E – rate of profitability; Иt – the amount of investment in the estimated period of time.
If ID > 1 – the investment project is effective; ID< 1 – инвестиционный проект неэффективен; ИД = 1 – нейтрален.
The advantages of the ID indicator include the fact that it allows you to create an effective portfolio of investment projects, for example, in the case of choosing a project from alternative ones that have approximately equal NPV, but different amounts of investment costs. On the other hand, the ID indicator does not take into account the scale of investment projects.
Payback period
According to the full reimbursement method, or the payback period method, the number and duration of periods (most often years) are determined during which the invested funds are fully recovered. This is, in its purest form, an indicator inverse to the efficiency of capital investments. The payback period is defined as the period of time during which investment costs will be offset by the resulting effect.
If T OK< T norms – the investment project is effective; T OK > T norms – the investment project is ineffective. Here T norms – the maximum period for repayment of investment costs adopted by the company.
The advantages of this indicator include the ability to evaluate an investment project in conditions of limited resources, but it does not take into account the income received beyond the payback period.
All of the methods discussed above for assessing the effectiveness of investment projects are closely interconnected, and therefore, for a comprehensive assessment of an investment project, they are analyzed and considered together.
However, not only purely economic factors play a role in the investment decision-making process. Thus, the choice of a decision in one direction or another may be influenced by issues related to environmental protection, job preservation, etc. In addition, when making investment decisions, it is necessary to take into account various types of risks. The longer the investment cycle, the more risky the investment, other things being equal.
- 6. Why is it necessary to take into account the time factor when determining the effectiveness of investments?
- 7. What is the difference between discounted investment and present value?
The effectiveness of investment projects implies the compliance of the project with the goals and interests of its participants. The effective implementation of projects increases the gross domestic product at the full disposal of society, which is divided between the firms participating in the project, banks, budgets of different levels, shareholders, etc. The income and expenses of these entities determine the choice of various efficiencies of investment projects.
Types of efficiency:
the effectiveness of the project as a whole;
effectiveness of participation in the project.
The effectiveness of the project as a whole is assessed to determine the possible attractiveness of the project for future participants and to find sources of financing.
It includes the public (socio-economic) and commercial effectiveness of the project.
Indicators of social efficiency - the socio-economic consequences of creating an investment project for the entire society (including both direct costs and results of the project) and “external”: costs and results in related sectors of the economy, social, environmental and other non-economic effects. In some cases, when these effects are very significant, the assessment of independent qualified experts can be used in the absence of documents. Indicators of the commercial effectiveness of a project take into account the financial consequences of its implementation for the participant who is implementing the investment project.
In general, project performance indicators from an economic point of view characterize technological, technical and organizational aspects.
The effectiveness of participation in a project lies in the interest of all its participants in it and the feasibility of the investment project.
The effectiveness of participation in the project should consist of:
the effectiveness of enterprises’ participation in the project;
the effectiveness of participation in the project by structures of a higher level than enterprises participating in the investment project;
efficiency of investing in company shares;
budgetary efficiency of the investment project.
Basic principles of efficiency:
reviewing the project throughout its entire life cycle until its termination;
correct distribution of cash flows, including all cash receipts and expenses associated with the implementation of the project for the billing period, taking into account the possibilities of using different currencies;
comparability of different projects;
the principle of positivity and maximum effect. From the investor’s point of view, in order for an investment project to be recognized as effective, it is necessary that the effect of the project’s implementation be “plus”; when comparing several investment project alternatives, preference should be given to the project with the greatest effect value;
taking into account the time factor. When assessing the effectiveness of a project, it is necessary to take into account various aspects of the time factor, as well as changes over time of the project and its economic environment; the time gap between the receipt of resources or production of products and their payment; inequality of costs or results at different times (earlier results and later costs are preferable);
accounting only for upcoming revenues and expenses. When calculating efficiency indicators, it is necessary to take into account only the revenues and costs planned during the implementation of the project, including costs that are associated with the attraction of previously formed production assets, as well as upcoming losses that are caused by the implementation of the project (for example, from the cessation of existing production in connection with the creation of place of the new one);
taking into account all the most significant consequences of the project. When assessing the effectiveness of an investment project, it is necessary to take into account all the consequences of its implementation. If their impact on performance can be quantified, it should be assessed in these cases. In other cases, this influence should be taken into account by experts;
taking into account the project participants, the contradiction of their interests and different estimates of the cost of capital;
phasing of assessment. At different stages of project development and implementation (selection of a financing scheme, investment justification, economic monitoring), its effectiveness is re-determined with varying depth of elaboration;
taking into account the impact on the effectiveness of the investment project of the need for working capital, which is necessary for the operation of production assets created at the stages of project implementation;
taking into account the impact of inflation (taking into account changes in resources and prices for various types of products during the project implementation period) and the possibility of using several currencies when implementing the project;
taking into account (in quantitative form) the impact of risks and uncertainty accompanying the implementation of the project.
The amount of initial information depends on the design stage at which the effectiveness assessment is made.
Initial information should include:
objective of the project;
nature of production, general information about the technology used, type of products (works, services) produced;
information about the economic environment;
conditions for the start and completion of the project, the duration of the billing period.
Before assessing the effectiveness, the social significance of the project is determined by experts.
National economic, large-scale projects are considered socially significant.
At the initial stage, performance indicators of the project as a whole are calculated.
The purpose of the stage is to create the necessary conditions for searching for investors and an aggregated economic assessment of project solutions.
For local projects, only their commercial effectiveness is subject to assessment; if it is acceptable, it is recommended to proceed directly to the next stage of assessment.
First of all, for socially significant projects, their social effectiveness is assessed. If social efficiency is poor, such projects are not recommended for implementation and do not have the right to apply for government support. If their social effectiveness is sufficient, their commercial effectiveness is assessed. If a socially significant investment project has sufficient commercial efficiency, then it is recommended to consider the possibility of using various forms of support to increase its commercial efficiency to the required level.
If the conditions and sources of financing are already known, the commercial effectiveness of the project need not be assessed.
After the financing scheme has been developed, the second stage of assessment is carried out.
At this stage, the composition of participants is taken into account and the financial efficiency and feasibility of participation in the project of each of them is calculated (industry and regional efficiency, budget efficiency, efficiency of participation in the project of shareholders and individual enterprises, etc.).
When assessing the effectiveness of investments for certain project participants, additional information is required about the functions and composition of these participants.
For participants who simultaneously perform several disparate functions in a project (for example, investors purchasing manufactured products or providing borrowed funds), these functions as a whole should be described. For those participants who have already been identified at this stage of calculations, information is needed about their financial condition and production potential.
The production potential of an enterprise is calculated by the value of its production capacity (preferably in kind for each type of product), wear and tear and composition of main technical equipment, structures and buildings, the presence of intangible assets (patents, know-how, licenses), the availability and professional qualification structure of personnel .
When a project involves the creation of a new company, previously collected information about its shareholders and the amount of the expected share capital is necessary. Other participants (for example, a lending bank, a lessor of a particular property) are determined only by their functions during the implementation of the project.
Information about the economic environment of the project should include:
a forecast assessment of the general inflation index and a forecast of relative or absolute changes in prices for certain resources and products (services) for the entire period of project implementation;
forecast of changes in the currency exchange rate or the internal inflation index of foreign currency for the entire duration of the project (for the previous and this paragraphs, it is desirable to formulate different forecast scenarios);
information about the taxation system.
Forecast prices are usually determined sequentially, based on the rate of price growth at each stage.
In some cases, the dynamics of forecast prices is determined based on the need to bring the structure of these prices closer to the structure of world prices.
The source of this information is long-term forecasts and plans of government authorities in the field of economic policy and finance, analysis of trends in prices and exchange rates, analysis of the price structure for resources and products (services) in Russia and the world.
Information about the tax system should contain, first of all, a more detailed list of taxes, excise taxes, fees, duties and other similar payments (hereinafter referred to as taxes).
Particular attention should be paid to taxes that are regulated by regional legislation (taxes of federal subjects and local taxes). For each type of tax, you must provide the following information:
tax base;
tax rate;
frequency of tax payments (payment deadlines);
on tax benefits (insofar as they relate to enterprises participating in the project). If the composition and amount of benefits are established by federal legislation, you can indicate the document by which they are determined. The benefits that have been introduced by the constituent entities of the federation and the local administration are described in full;
distribution of tax payments between budgets of different levels.
This information is provided separately for tax groups, and payments for them are reflected in the enterprise’s balance sheet differently. If information about a specific tax is established by federal legislation, you can only indicate the corresponding document. As a result, if for the corresponding type of production or region this tax is calculated in a different manner, it is necessary to provide an appropriate addition and change. Calculation of indicators of commercial efficiency of individual entrepreneurs is formed on the following principles:
current or forecast prices for material resources, products and services provided for by the project (market) are used;
cash flows are calculated in the same currencies in which the project provides for the acquisition of resources and payment for products;
wages are included in operating costs in the amounts determined by the project (including deductions);
if the project involves both the consumption and production of some products (for example, the production and consumption of components or equipment), the calculation takes into account only the costs of its production, but not the costs of its acquisition;
the calculation takes into account deductions, taxes, fees, etc., provided for by law, in particular, VAT reimbursement for consumed resources, tax benefits established by law, etc.;
if the project provides for the full or partial binding of funds (purchase of securities, deposit, etc.), the investment of the corresponding amounts (in the form of outflow) is taken into account in cash flows from investment activities, and receipts (in the form of inflows) are taken into account in cash flows from operating activities ;
if the project involves the simultaneous implementation of several types of operating activities, the costs for each of them are taken into account.
The following tables are recommended as output forms for calculating the commercial efficiency of a project:
profit and loss statement;
cash flows with calculation of performance indicators.
To build a profit and loss statement, you must provide information about tax payments for each type of tax.
As an (optional) addition, a forecast of the balance of liabilities and assets by stages of calculation can also be provided (balance sheet table). In the process of calculating performance indicators, two main aggregates are used: the amount of receipts and the amount of payments.
From the definition given in the methodological recommendations of the World Bank, the amount of revenue is the amount of benefits received as a result of the project, and the amount of payments is the amount of costs for the implementation of the project.
In certain cases, other income from other types of activities may also be taken into account, for example, financial transactions for placing available funds on deposit with a bank. That is, these are the following payments:
investment costs, such as plant construction costs;
production costs (bricks);
tax payments;
costs of servicing debt obligations, interest on loans.
The costs of carrying out other transactions not related to the main activity (for example, financial transactions with free cash resources) may also be taken into account. The list of receipts and payments, regardless of the absence of receipts in the form of equity (shareholder) or borrowed capital, may include payments to service the debt. When receiving a loan, an enterprise actually rents money, and interest is only rental payments for the use of funds.
Items of receipts and payments made by the bank in relation to the project:
proceeds from loans issued for the project in the form of interest;
amounts paid to the bank as debt repayment by the company implementing the project;
dividends from the implementation of the project (in the case of the bank acquiring a part in the project - a block of shares in the company implementing the project);
receipt of funds if the bank sells its part (shares) of the project.
The following payments are implied:
costs of direct investment in the project (in case of acquisition of shares);
loans issued by the bank;
costs of servicing the bank's debt obligations on borrowed funds (payment for resources);
the bank's costs for supporting activities, overhead costs (as a result of assessing the entire set of bank projects).
It should be taken into account that the conditions for participation in the project of different investors may differ from each other, for example, the bank that provided the loan and the venture fund that purchased the stake.
Taking into account the effectiveness of each investor’s participation in the project, it is necessary to take an individual approach to the selection of items of payments and receipts used in the calculations, depending on the object of evaluation.
It is also necessary to take into account that the discounting process already takes into account the cost of capital (resources in the bank example).
In this case, it is not necessary to take into account the amounts paid by the bank to service the debt.
Of the indicators considered, each reflects the effectiveness of the project from different aspects, therefore, when evaluating any project, it is necessary to use the full set of criteria.
When considering projects, preference should be given to those that have higher efficiency indicators.
Therefore, to make a decision on project financing in the form of defining performance indicators, it is necessary to use the values obtained during the calculation for the equivalent of the financial result in hard currency.
The values of most criteria depend on the duration of the project.
To do this, it is necessary to take into account the time period for which they were calculated.
Even the most stable monetary units can be classified as such with a certain degree of convention.
Having agreed among themselves on the use of certain project performance indicators and very specific methods for their calculation, the specialists, of course, had in mind that the unit of measurement of the initial data and the results obtained would meet the same basic condition, namely constancy.
And also it must be a generally accepted monetary unit, which can be classified as conditionally stable.
It is necessary to invest in such a way that the income from each invested monetary unit is the same for each investment program.
If investment costs are distributed in such a way that the increment in utility obtained from the implementation of one investment program is less than from another, then the funds are used less efficiently than they could.
Therefore, utility can be increased by reducing investment in projects that generate negligible income. An investor who wants to make the most of his invested resources must redistribute his funds in this way and do this until the increase in utility from the investment becomes the same in all directions.
The way for consumers of investments to achieve the highest effect from them is that they must control that the marginal utility is the same for all investment programs and projects.
Investments should be used so that the marginal effect is the same for all projects.
This approach should be the basis for the choice of the economy as a whole, industry, and enterprise between different options for investment programs.
If all decision-makers in the national economy follow this rule, total utility and production volume will be maximized.
Ignoring this situation leads to stagnation of production, a decline in economic growth, and a deep economic recession.
Failure to use marginal utility leads to a deformation of the structure of investments, which are not directed to the most profitable economic sectors that best satisfy the consumer needs of the population, selected according to a completely different criterion.
This leads to a very deformed structure of the economy.
In order for wealth to be as high as possible, it is also necessary for investment activities to proceed as smoothly as possible.
In order for governments, businesses and citizens to make rational and sound investment decisions, they must have access to information about the costs and consequences of their choices. The costs of collecting information and the process of preparing for the implementation of an investment project should be very insignificant. The higher the costs associated with the preparation of investment programs, the less efficient the investment process itself can be organized.
Economic resources are limited compared to people's needs and desires.
Therefore, it is necessary to use them sparingly. Scarcity of resources means that people are forced to choose how to consume the resources available in order to achieve the greatest effect from their use.
Scarcity of resources also means that everything has a price, as there is always an opportunity cost.
To get the best effect from available resources, it is necessary to accurately balance profits and costs. At the level of a company or enterprise, the preference and profitability of investments is calculated in such a way that management rarely pays attention to some effects other than those directly related to the economy of the company or enterprise.
Meanwhile, government financial calculations examine the items of income and expenditure included in the government budget.
But the macroeconomic consequences of the decisions of the state, enterprises, companies and some citizens are more extensive.
They also include aspects that do not directly and directly fall into the final calculations of the company or into the debit or credit of the state budget.
Hence the need to expand the boundaries of the analysis of the consequences of certain investment decisions at the project stage, to predict the consequences, to predict the further impact on the course of the entire economic process. The value of the efficiency of investment investments is the minimum cost of resources for transportation and production of products as a result of these investments.
When calculating the efficiency of investing in fixed assets, the costs of creating working capital are also added.
In addition to direct investments, accompanying investments are also taken into account, ensuring the launch of the facility into operation (power lines, access roads, utility networks), and associated ones - in the development of production, providing this production with continuously renewable fixed assets.
The effectiveness of investments is not the same over time.
This is based on the ratio of the increase in capital investment to the increase in national income: the greater this ratio, the greater the capital intensity of national income, the more additional investments must be made per unit of increase in national income.
And this requires the largest share of savings in national income.
The issues of choosing volumes and directions of investment are the subject of a large number of publications and various discussions.
There are several reasons for the great interest in the problem of rational investment observed recently.
First of all, in the context of the transition to market forms of organization of production, responsibility and risk in the use of investment resources have greatly increased.
In addition, during the period of a market economy, at a time of dynamization of economic life, individual volumes of investment investments increase.
The correct choice of investment programs in such conditions is becoming an increasingly responsible and complex matter. It should also be said about the ongoing changes in the technical and organic structure of capital in the current era of information technology. With the progressive development and accumulation of technology and science, the proportion of fixed capital increases, the technical equipment of labor increases, and the scale of the means of labor and productivity grow. All this increases the connection of capital in the means of labor and reduces its maneuverability.
As a result, interest in the right choice of scale and investment objects is growing: the stakes in the struggle for profit are too high.
Economic science is faced with the question of finding criteria for selecting extremely profitable investment projects. The main criterion is to achieve maximum profit. Along with the direct benefit received today, more and more importance is being attached to the expected benefit.
The possibility of ousting competitors from the market must be assessed, and the benefits from the “secondary effect” provided by the development of subsequent investments and production are determined, i.e., benefits that go beyond the boundaries of a single company or enterprise.
The larger the enterprise, the corporation, the greater the capital they have, the more opportunities they have, along with investments that sharply bring greater profits, to make investments in which significant profits can be expected in the future. Income and expenses of the current moment in time are not equivalent to the future. Therefore, their comparison is necessary.
In market conditions, any capital invested in a firm or enterprise is defined as employed, on which interest must be paid.
Even if an entrepreneur invests his own capital, in order not to be at a loss, he must take into account in his costs the interest on capital, no less than that which could have been received, provided that it was provided to someone on a long-term loan.
This percentage is usually the basis when creating companies and other objects in market conditions, comparing options and choosing the more profitable one.
In addition to interest, which represents the “price of capital,” the possibility of making a profit and business income is also taken into account.
Here, much depends on certain production conditions: the supply of raw materials, energy and fuel, the availability of secure sales, and the degree of use of labor.
When calculating the most profitable investments within an enterprise or company, its management resorts to various calculation methods.
In practice, a large number of individual business entities often use very rough calculations based on experience, assumptions, conjectures, information about the actions of competitors, etc.
There are few firms that use systematic calculation methods. These are usually large firms that have a staff of specialists and better information.
The task of the former is to develop technology, study market conditions, etc.
If the project meets all criteria for assessing economic efficiency, then it can be accepted.
Efficiency assessment must be carried out based on the interests of all its participants: the foreign investor, the enterprise and local and republican governments. According to methodological recommendations, the following types of economic efficiency are distinguished:
- · commercial (financial) efficiency, taking into account the financial results of the project for its direct participants;
- · budgetary efficiency, reflecting the financial consequences of the project for the republican and local budgets;
- · economic efficiency reflects the impact of the process of implementing an investment project on the environment external to the project and takes into account the ratio of results and costs of the investment project, which are not directly related to the financial interests of the project participants and can be quantified.
The methodology for calculating the effectiveness of project implementation consists of four stages:
- · Estimation and analysis of total investment costs. It involves calculating the needs for fixed and working capital, distributing financing needs by stages of the investment cycle (design, construction, installation, commissioning, reaching design capacity, operating at full capacity).
- · Estimation and analysis of current costs. This includes drawing up cost estimates for the production of products (works, services), determining and analyzing the cost of individual types of products (works, services).
- · Calculation and analysis of project commercial efficiency indicators.
- · Determination of budget efficiency indicators.
The main problem when calculating indicators is to bring investment costs and future revenues at different times into a comparable form, i.e. to the initial period.
The assessment of upcoming costs and results is carried out within the calculation period, the duration of which (calculation horizon) is taken into account the weighted average standard service life of the main technological equipment or the requirements of the investor.
To bring indicators at different times, the discount factor (b t) is used, determined by the formula:
where: t is the year, the costs and results of which are reduced to the initial period (t = 0, 1, 2,…,T);
En is the discount rate equal to the rate of return on capital acceptable to the investor.
The purpose of the En coefficient is to temporarily organize funds of different time periods. Its economic meaning is what annual percentage return an investor wants or can have on the capital he invests. When setting it, they usually proceed from the level of inflation and the so-called safe or guaranteed level of return on financial investments, which is provided by the state bank when dealing with securities. An important point when determining the discount rate is taking into account risk. Risk in the investment process appears in the form of a possible decrease or loss of the real return on invested capital compared to the expected one.
It is recommended to compare different options for investment projects and select the best one taking into account the use of various indicators, which include:
- · net present value (NPV) or integral effect;
- · profitability index (ID);
- · internal rate of return (IRR);
- · payback period;
- · other indicators reflecting the interests of the participants and the specifics of the project.
Net present value (NPV or NPV) is determined by the formula:
where: Rt is the valuation of the results (the amount of cash receipts) achieved at the t-th step;
- 3t - valuation of costs (investment of funds) in period t;
- (Rt - 3t) - effect achieved at the t-th step.
Net present value is the result of the project, which is the sum of current effects for the entire billing period, defined as the excess of discounted cash receipts over the amount of discounted investment costs.
When comparing investment project options, the one with the maximum net present value is more effective. If NPV<0, то проект неэффективен, и от него следует отказаться.
There are various modifications of formulas for determining the integral effect, reflecting different degrees of detail of monetary resources passing through the enterprise during the billing period, i.e. income and costs.
The profitability index (Pref liability Index) (ID or PI) is the ratio of the sum of the given effects to the amount of capital investment. It is determined by the formula:
where: 3t* - cost estimate of current costs at the t-th step;
K - the amount of discounted capital investments:
The profitability index characterizes the average annual return on invested capital during the accounting period.
This indicator is closely related to net present value. If NPV is 0, then ID >1 and vice versa. If ID>1, the project is effective, if ID<1 - неэффективен. При ИД=1 проект не является ни прибыльным, ни убыточным. Критерием выбора наиболее эффективного варианта является максимальное значение индекса доходности.
Unlike net present value, the profitability index is a relative indicator. Thanks to this, it is very convenient when choosing one project from a number of alternative ones that have approximately the same NPV values, or when assembling an investment portfolio with the maximum total NPV value.
The internal rate of return on investment (IRR) is the discount rate (Evn), at which the value of the reduced effects is equal to the reduced investment or the net present value is zero:
The meaning of calculating this indicator when analyzing the economic efficiency of planned investments is as follows: IRR shows the maximum permissible relative level of income that can be associated with a given project. For example, if a project is financed entirely by a loan from a commercial bank, then the IRR value shows the upper limit of the acceptable bank interest rate, above which the project will be unprofitable.
The selection criterion is the maximum value of GNI, provided that it exceeds the minimum bank interest rate.
The payback period for investments is the minimum time interval (from the start of the project), beyond which the integral effect becomes and subsequently remains non-negative. In other words, this is the period from which initial investments and other costs associated with investment are covered by the total results of its implementation. Simple (non-discount) and discount methods for assessing return on investment make it possible to judge the liquidity and riskiness of a project, since long-term payback means reduced liquidity of the project or increased riskiness.
The general formula for calculating the payback period is:
Another method for determining the payback period is more reasonable. When using this method, the payback period is understood as the duration of the period during which the amount of net income discounted at the time of completion of the investment is equal to the amount of the discounted investment.
The investment efficiency ratio characterizes the annual profitability of all invested capital, including share capital. It is determined by dividing the average annual profit by the average investment. We compare this indicator with the return on advanced capital ratio, calculated by dividing the total net profit of the enterprise by the total amount of funds advanced into its activities.
In addition to the considered indicators, when evaluating investment projects, other criteria are also used, including integral cost efficiency, break-even point, project financial assessment coefficients (profitability, turnover, financial stability, liquidity), characteristics of the financial section of the business plan. The key categories underlying the rationale for a financial plan include the concepts of real money flow, real money balance, and real money balance.
When implementing an investment project, investment, operating and financial activities and the inflows and outflows of funds corresponding to these types of activities are distinguished.
The real money flow is the difference between the inflow and outflow of funds from investment and operating activities in each period of the project. The flow of real money acts in calculations of commercial efficiency as an effect at the t-th step (Et).
A necessary condition for project acceptance is a positive balance of accumulated real money in each period of project implementation.
None of the listed indicators by itself is sufficient for the adoption of the project. The choice of certain investment efficiency indicators is determined by the specific objectives of investment analysis.
Commercial efficiency. Commercial efficiency is determined by the ratio of costs and results that provide the required rate of return. Commercial efficiency can be calculated both for the project as a whole and for its individual participants.
The enlarged algorithm for assessing commercial efficiency includes the following procedures:
- · calculation of the flow and balance of real money for all types of activities (investment, production, and financial in each period of the project;
- · determining the acceptability of the project depending on the balance of accumulated real money;
- · calculation of integral performance indicators for each investment project option;
- · comparative analysis of performance indicators and selection of the best option according to specified criteria.
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Course work
Economic efficiency of the investment project
Selishcheva Natalya Andreevna
Vladivostok 2012
Introduction
2.5 Calculation of the efficiency of an investment project for the construction of a gas processing complex
Conclusion
Bibliography
Applications
investment project gas processing complex
Introduction
Investment activity is extremely important because it creates the basis for the stable development of the economy as a whole, its individual sectors, and economic entities.
All enterprises are to one degree or another connected with investment activities. As a result of its functioning, any company is faced with the need to invest funds in its development. In other words, for a company to develop effectively, it needs to have a clear policy for its investment activities. In any effectively operating company, issues of managing the investment process occupy one of the most important places.
In a market economy, there are quite a lot of investment opportunities. At the same time, any enterprise, as a rule, has limited free financial resources available for investment. Therefore, it is necessary to choose the optimal investment project.
The implementation of investment goals involves the formation of investment projects that provide investors and other project participants with the necessary information to make an investment decision.
The concept of an investment project is interpreted in two ways:
as an activity (event) that involves the implementation of a set of actions that ensure the achievement of certain goals;
as a system that includes a set of organizational, legal, settlement and financial documents necessary for carrying out any actions or describing these actions.
This work talks about the assessment of capital investments in real investment projects, therefore the concept of “investment project” is used in the second meaning.
1. Economic efficiency of the investment project
1.1 The concept of an investment project and project cycle
In the Russian Federation, investments (in accordance with the Federal Law on investment activities in the Russian Federation, carried out in the form of capital investments) are usually understood as funds, securities, other property, including property rights, other rights having a monetary value, invested in objects of entrepreneurial and (or) other activity in order to make a profit and (or) achieve another beneficial effect.
Investment activity - making investments and carrying out practical actions in order to make a profit and (or) achieve another useful effect. Capital investments - investments in fixed assets (fixed assets), including costs for new construction, expansion, reconstruction and technical re-equipment of existing enterprises, purchase of machinery, equipment, tools, inventory, design and survey work and other costs.
Investment project - justification of the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and duly approved standards (norms and rules), as well as a description of practical actions for making investments (business plan).
The payback period of an investment project is the period from the date of commencement of financing of the investment project until the day when the difference between the accumulated amount of net profit with depreciation charges and the volume of investment costs becomes positive; (paragraph introduced by Federal Law dated January 2, 2000 N 22-FZ).
In international practice, an enterprise development plan is presented in the form of a business plan, which is essentially a structured description of an enterprise development project. If the project is related to attracting investments, it is called an “investment project.” Typically, any new project of an enterprise is, to one degree or another, associated with attracting new investments. In the most general understanding, a project is a specially designed proposal to change the activities of an enterprise, pursuing a specific goal.
Projects are usually divided into tactical and strategic. The latter usually include projects that involve a change in the form of ownership (the creation of a rental enterprise, a joint stock company, a private enterprise, a joint venture, etc.) or a fundamental change in the nature of production (the release of new products, the transition to fully automated production, etc.). ). Tactical projects are usually associated with changing production volumes, improving product quality, and modernizing equipment.
The general procedure for streamlining the investment activities of an enterprise in relation to a specific project is formulated in the form of a so-called project cycle, which has the following stages:
Project formulation (sometimes the term "identification" is used). At this stage, the top management of the enterprise analyzes the current state of the enterprise and determines the highest priority directions for its further development. The result of this analysis is formalized in the form of a certain business idea, which is aimed at solving the most important problems for the enterprise. Already at this stage it is necessary to have a more or less convincing argument regarding the feasibility of the idea. Several ideas for further development of the enterprise may emerge. If they all seem equally useful and feasible, then several investment projects are developed in parallel so that a decision on the most acceptable one can be made at the final stage of development.
Development (preparation) of the project. After the business idea of the project has passed the first test, it is necessary to develop it until the moment when a firm decision can be made - positive or negative. At this stage, gradual clarification and improvement of the project plan is required in all its directions - commercial, technical, financial, economic, investment, etc.; at this stage, initial information is searched and collected to solve individual project problems. It is necessary to recognize that the success of the project depends on the degree of reliability of the initial information and the ability to correctly interpret the data that appears in the process of project analysis.
Project examination. Before starting a project, its qualified examination is a highly desirable stage in the project life cycle. If the project is financed mainly by a strategic investor (credit or direct), then the investor himself conducts the examination, for example, with the help of some reputable consulting firm, preferring to spend a certain amount at this stage rather than lose most of his money in the process of project implementation . If an enterprise plans to implement an investment project primarily at its own expense, then an examination of the project is highly desirable to verify the correctness of the main provisions of the project.
Implementation of the project. The stage covers the actual development of a business idea until the moment when the project is fully put into operation. This includes monitoring and analysis of all activities as they are carried out and control by regulatory authorities within the country and/or foreign or domestic investor. This stage also includes the main part of the project implementation, the task of which is ultimately to verify the adequacy of the cash flows generated by the project to cover the initial investment and provide the return on investment desired by investors.
Evaluation of results. It is carried out both upon completion of the project as a whole and during its implementation. The main goal of this type of activity is to obtain real feedback between the ideas included in the project and the degree of their actual implementation. The results of such a comparison create invaluable experience for project developers, allowing them to be used in the development and implementation of other projects.
The criterion for the effectiveness of an investment project for a credit or institutional investor will be the return on the funds invested. Moreover, since we are talking about the future with its uncertainty, this task has two aspects: the first is the absolute value of the project’s profitability and the second is the probability of achieving it.
In this regard, it is necessary to take into account the difference in the interests of the creditor bank and the institutional investor when investing funds. The bank, as a rule, lends to the enterprise at an interest rate that fluctuates around the equilibrium market value. Accordingly, the bank is not interested in the excess of income from the implementation of the project over the amount ensuring the repayment of interest and principal on the loan. On the other hand, the bank does not participate in the authorized capital of the enterprise and, therefore, cannot directly influence the decisions taken to implement the project. These two factors determine the bank's priorities when issuing funds; the main focus is on the reliability of the project, that is, guarantees of repayment of principal and interest. On the contrary, an institutional investor, who has a share of the profits from the project and participates in decision-making on its implementation, is more interested in the effectiveness of the project.
The effectiveness of the project is analyzed using simple (statistical) methods and discounting methods. Simple (statistical) methods are based on the assumption of equal importance of project income and expenses received in different periods of time. The main statistical methods are:
calculation of a simple rate of return in the form of the ratio of net profit on the project for the analyzed period to total capital costs (investments);
calculation of the payback period as the number of years for which the net profit received from the project plus depreciation charges (the so-called “net revenue”) will cover the capital costs (investments).
Statistical methods can serve as a tool for rough assessment of a project, but their imperfection lies in the assumption of equal importance of income and expenses related to different periods of time. Meanwhile, the investor is faced with the problem of so-called “opportunity costs”, which consists in the fact that during the period between two moments of receipt of funds, he can make a risk-free and liquid investment of earlier income (for example, in government treasury bonds) and thereby receive a guaranteed income from earlier receipts to the time of receipt of later receipts. This means that income and expenses relating to different periods of time do not have the same value for the investor, or, expressed differently, capital has a time value (interest). Therefore, to conduct a rigorous analysis of an investment project, it is necessary to use discounting methods, that is, bringing project income (expenses) relating to different periods of time to one denominator through the use of a special coefficient - discount, reflecting the time value of capital. As a discount, you can use interest on liquid, risk-free investments.
Another discount option is the so-called target rate of return, equal to the minimum acceptable return on investment for a potential investor. The target rate of return can be determined as a result of direct negotiations with the investor or studying the specifics of the industry in which the investor is engaged; for example, for a bank, the target rate of return may be the interest on deposits, or the discount rate of interest, or the interest on an interbank loan, but, most likely, the average interest rate on loans issued (in the latter case, the excess of the investment efficiency of the target rate of return will characterize the “ceiling of reliability » loan repayment to the bank).
The main discounting methods are:
net present value method;
integral current value method;
internal rate of return method.
Net present value method
“Net present value” (the English abbreviation NPV for net present value) refers to the difference between discounted income and expenses over a certain period of time. Thus, the net present value (NPV) indicator is calculated for a certain period, and the maximum period for calculating this indicator is the full investment cycle (the period of full depreciation of the investments made). Since project revenues generally begin to arrive at a later date than the capital expenditures incurred, the net present value calculated over a longer period usually has a greater positive value. We present the calculations using formula (1).
where NPV is the net present value for a period of time equal to n years;
Di - net financial flows (the difference in cash receipts and expenditures) in the i -th year;
Ri is the discount value for i years from the start of the project (compound interest rate on risk-free investments, or target rate of return).
As noted above, net present value is always calculated over a specific period. The maximum calculation period is the useful life of the investment until full depreciation of the fixed assets created within the project (the so-called depreciation, or investment, cycle). It can be useful for an investor to calculate several net present value indicators for different time periods, since for the short-, medium- and long-term period he may have different investment strategies based, in particular, on the less uncertainty of the short-term period. It is important that the real usefulness of investments for an investor on a certain date consists not only of the net financial flows accumulated since the beginning of the project, but also of the liquid value of the capital investments made. The amount of money that can actually be obtained from the sale of an unfinished construction project or fixed assets that have already been put into operation. The liquid value of investments can be either greater or less than the capital costs incurred and is assessed by experts. The real utility of an investment for an investor at a certain date from the start of the project can be expressed through the integral present value (ITV) indicator. Let's reflect this in formula (2):
where (ITS)i is the integral current value i years after the start of the project;
(NPV)i - net present value i years after the start of the project;
(LP)i is the liquid value of investments i years after the start of the project;
Ri is the discount value i years after the start of the project.
It should be borne in mind that the liquid value of investments is discounted, that is, reduced to the time of the start of the project. Theoretically, the indicators of integral and net present value should coincide at the end of the depreciation cycle, when the liquid value of the investment becomes equal to 0.
Internal rate of return method
From a formal point of view, the internal rate of return method (IRR, the English abbreviation IRR for internal rate of return) is the inverse of the net present value method. Its essence is that the method of successive approximation is used to determine the discount value at which the net present value for a given period is equal to 0.
At first glance, the net present value and internal rate of return methods may seem completely interchangeable, providing the same result. However, this is not quite true. The difference between the two methods is as follows.
The internal rate of return, unlike net present value, is not directly linked to the criterion of maximizing the well-being of the company. If you need to answer the question of whether or not to invest in a given project, based on the minimum possible target rate of return (the minimum acceptable discount amount at which the net present value for the period will be greater than 0 and/or which is the minimum acceptable value for the internal rate of return ), then you can use the indicator (NPV or IRR). When it comes to an alternative solution, i.e. about the choice between two or more projects, then these two indicators may come into conflict.
Thus, a higher net present value for project A is achieved due to the greater value of the investor’s resources “weighted” by the immobilization period (extensive way of making a profit), and the better indicator of the internal rate of return for project B characterizes a higher return per unit of immobilized funds (intensive way to make a profit).
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Figure 1 Diagram of the dependence of the value of the current value on the value of the discount (the contradiction between the net present value and the internal rate of return)
In other words, the net present value indicator characterizes the amount of profit on invested capital, and the internal rate of return indicator characterizes the amount of profit on invested capital. Consequently, the internal rate of return and net present value, with all their interdependence, characterize different aspects of the project’s attractiveness for a potential investor and therefore must simultaneously appear in the financial and economic justification and business plan of the investment project.
Thus, the use of the three listed methods allows us to obtain a comprehensive assessment of the effectiveness of investments, in which each indicator used characterizes a separate aspect of the financial results of the project for the investor:
The net worth method allows you to estimate the amount of profit on invested capital;
the integral present value method provides a quantitative expression of the total utility of investments;
The internal rate of return method characterizes the rate of return on invested capital.
The internal unity of these three methods allows us to consider the category of investment efficiency in several planes, depending on the priorities of the investor and possible scenarios for the development of the project.
So, in the context of the effectiveness of the project, the investor is interested in the following main questions:
What is the total amount of money he will receive for the entire useful life of his investments, including in the context of different project implementation periods (net present value indicator);
what total amount of money will he receive from the investment if for some reason the project is terminated at an intermediate stage and the unfinished construction project will have to be sold (integral current value indicator);
what is the comparative return per unit of investment resources compared to existing alternative investments (internal rate of return indicator);
does the project remain profitable when the market interest rate on attracted investment resources increases; what is the upper limit of this increase (internal rate of return).
Analysis of the effectiveness of the project allows us to estimate the possible interval of their change under various conditions of project implementation. Probabilistic characteristics are used for:
making investment decisions,
ranking projects,
justification of rational sizes and forms of reservation and insurance.
When applying a particular risk analysis method, it should be borne in mind that the apparent high accuracy of the results can be deceptive and mislead analysts and decision makers.
1.2 Economic efficiency of the project and its indicators
Economic efficiency is one of the important categories that characterizes the performance of an enterprise and the possibility of implementing a project aimed at improving its performance. In its most general form, economic efficiency can be defined as the ratio of the results obtained to the costs incurred or resources consumed. Let us demonstrate this with formula (3):
Economic efficiency is a relative value. The absolute value expressing any useful result is the economic effect. From the definition of economic efficiency, the dual nature of this category is clear: it is determined in relation to costs or resources, which creates certain difficulties in its practical calculations. The resources of the enterprise are: fixed assets, working capital, labor, natural and financial resources. Costs characterize the measure of consumption of a particular type of resource at a certain point in time. But different types of resources are consumed unevenly (they have different turnover rates in the production process), which makes it difficult to convert them into costs. For example, fixed assets are used in an enterprise for a long period of time, do not change their physical form and transfer their value to the cost of production gradually, in parts as they wear out. Working capital, on the contrary, is consumed in each production cycle and immediately transfers its value to the cost of finished products. Since it is difficult to convert resources into costs and to accurately determine the quantity and speed of turnover for each type of resource, economic efficiency is assessed using indicators based on both cost and resource approaches.
Currently, in accordance with the “Methodological recommendations for assessing the effectiveness of investment projects and their selection for financing”, it is recommended to evaluate effectiveness according to the following indicators:
net present value (NPV);
profitability index (ID);
internal rate of return (IRR);
payback period.
All these indicators are based on taking into account the magnitude of the time factor. The time factor in calculations of economic efficiency is determined to take into account the multi-temporal nature of the activities being implemented. The need to take into account the time factor is due to the fact that the implementation of large projects requires a long period of time, during which inflation operates, invested funds do not produce returns, the initial design conditions, prices for raw materials and finished products change.
In order to compare costs at different times, their values are reduced to a single point in time, i.e. start time of the project, by calculating the discount factor (reduction) according to formula (4):
where t is the number of the calculation step: month, quarter, year.
The t value can vary within (formula (5):
where T is the calculation horizon or the last period of time for which the project’s effectiveness is assessed;
E is the discount rate that is constant over time for each calculation.
In a market economy, the discount rate is determined based on the bank interest rate on long-term deposits and the amount of investment risk associated with the implementation of a particular project. For each investment project, its own discount rate is determined, based on the conditions for obtaining a loan and the degree of risk of the project.
If the discount rate changes over time, then the discount factor is determined by formula (6):
where Еt is a variable discount rate.
Taking into account the discount factor, the calculation of the reduced capital investments (CPR) is carried out, i.e. such, the cost, the value of which is determined at the time of the start of the project. We present the calculations in formula (7):
where t is the calculation step or the time period for which the calculation is carried out;
Кt - capital investments at the t-th step of calculation or in the t-th period of time.
Calculation of indicators of net present value, profitability index, internal rate of return, payback period is carried out taking into account the discount factor.
Net present value (NPV) or integral effect is defined as the sum of current effects for the entire calculation period, reduced to the initial step, or as the excess of integral results over integral costs, as shown in formula (8):
where Rt are the results achieved at the t-th calculation step;
Zt - costs incurred at the T-th calculation step.
In practice, a modified formula for determining net present value may be used. When calculating it, the amount of capital investments is subtracted from the costs Zt and costs without taking into account capital investments are denoted Zt+. This formula (9) looks like:
The project is considered effective if the net present value is positive. If several projects are compared, then the optimal one is the one whose net present value is positive and maximum.
The profitability index is the ratio of the sum of the reduced effects to the amount of capital investment, as shown in formula (10):
When determining it, the same elements are used as in the modified formula for net present value, and if the net present value is positive, then the value of the profitability index is more than 1.
A project is considered effective if the value of the profitability index is more than 1.
The internal rate of return represents the discount rate at which the magnitude of the reduced effects is equal to the magnitude of the reduced capital investments.
They are determined by solving the following equation:
where is Evn. - internal rate of return. If its value is greater than or equal to the rate of return on invested capital required by the investor, then from his point of view, investing in this project is effective.
The payback period is the minimum time interval (from the start of the project), beyond which the integral effect becomes and remains positive in the future, i.e. This is the time during which the results obtained from the implementation of the project cover the amount of funds invested in it.
2. Assessing the effectiveness of an investment project using the example of VOJSC Khimprom
2.1 Economic characteristics of the enterprise VOJSC Khimprom
OJSC "Khimprom" is one of the largest enterprises in the domestic chemical complex.
Currently, the main activities of JSC Khimprom are the production and sale of chemical products for technical purposes, and this is an impressive list of inorganic and organochlorine compounds, polymers and plasticizers, solvents and refrigerants.
One of the new activities of the enterprise is the production of fire retardants (flame retardants).
OJSC "Khimprom" is actively engaged in the production of consumer goods, including various types of synthetic detergents, insecticides, disinfectants and detergents, and car care products.
In 2005, JSC Khimprom launched a modern Italian line for the production of aerosol preparations.
OJSC Khimprom has enormous production capacity for plant protection chemicals and intends to actively develop this promising area.
The range of products includes more than 120 items. This is the widest range among chemical enterprises in our country.
OJSC "Khimprom" has all the capabilities to produce high-quality chemical products that meet the most demanding requirements of customers in Russia and abroad.
Construction of the first-born of Volgograd Chemistry began in mid-1929, and already on June 1, 1931, the first units were launched. Built among 518 industrial facilities planned for commissioning under the first five-year national economic plan of the USSR, the plant gradually increased its production capacity. By the beginning of 1938, the enterprise became a leader in the industry in terms of its potential.
The sixties of the last century became “stellar” in the history of the chemical plant. Their first half was characterized by the highest rates of development of new technologies, industries, and equipment. Over the seven-year period (1959-1965), it was possible to increase the volume of output by 4.9 times. More than 800 improvement proposals were introduced by factory inventors. On March 26, 1965, the enterprise, which until then bore code names - plant PO Box No. 91, chemical plant "Volga", plant PO Box No. 5 - was given its first open name: Volgograd Chemical Plant named after. S.M.Kirova.
The plant continued technical re-equipment and reconstruction. The range of products produced exceeded one hundred items. Considerable importance was also given to the culture of production, establishing and maintaining exemplary order and landscaping the territory of the enterprise.
Since 1988, the plant has reached the international level. The first to establish direct trade and economic ties were with Bulgaria and Hungary. Good experience was gained in the further development of foreign trade activities.
In the early 90s, the country began to experience a sharp decline in production volumes, and the living standards of the population dropped noticeably. All this did not bypass Volgograd chemists. In the first years of the post-Soviet period, Khimprom employed about 12 thousand people, produced about 160 types of products, and the company supplied its products to more than 10 thousand consumers, including 12 countries far and near abroad.
On February 21, 1995, PA Khimprom was transformed into a Volgograd open joint-stock company, the main shareholder of which was the state represented by the Ministry of Property Relations of the Russian Federation (51% of shares). Unfortunately, the enterprise turned out to be not quite ready for the new economic and social conditions of the transition period. It was not possible to avoid significant accounts payable due to the uncontrolled rise in energy prices, huge costs of maintaining social infrastructure and insufficient profits due to a decrease in consumer payment demand.
The Management Board and the Board of Directors of the enterprise developed measures to increase the volume of production and sales of seasonal products, increase profitability and product quality. By mid-1996, the financial position of the enterprise had improved somewhat. On July 31, 1996, JSC Khimprom was renamed into Volgograd Open Joint Stock Company Khimprom. The company operates under this name to this day.
The Company is an independent commercial organization with the rights of a legal entity. The Company has an independent balance sheet, settlement and other accounts in banking institutions of the Russian Federation and abroad in rubles and foreign currency, as well as a duly registered trademark and other means of visual identification.
The amount of the authorized capital of the Company is 200,804,100 (two hundred million eight hundred four thousand one hundred) rubles.
The main performance indicators over the years 2006-2008 are reflected in Table 1.
Table 1 Key performance indicators over time for 2006-2008
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Indicators |
Absolute deviations +(-) |
Deviations in % |
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Revenue from sales of services |
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Cost of services provided |
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|
Gross profit |
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|
Revenue from sales |
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Other operating income |
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Other operating expenses |
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Revenue from sales of services |
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Non-operating expenses |
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|
Profit before tax |
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|
Net profit |
The cost of production in 2008 increased by 347,597 thousand rubles. or by 15.15%.
Due to the fact that the growth in sales revenue was higher than the growth in costs, in 2008 there was an increase in profit from sales of sales by 78,518 thousand rubles or 3.5 times.
Summing up the overall results of activities, it must be said that the highest indicators were noted in 2008. This is due to an increase in production volumes.
Recently, a new direction has emerged - the processing of natural gas into chemical products. Currently, the laboratory team is theoretically considering the concept of technology for producing ethylene and propylene from methane under the conditions of chlor-alkali production infrastructure. The laboratory has a rich, at the academic institute level, instrumental base in the field of processing PVC into plastics. Here, intensive development of polymer compositions is being carried out in order to reduce their cost, reduce flammability and smoke formation. The plastics testing complex determines the mechanical properties of manufactured products. The laboratory equipment allows the use of gas-liquid chromatography (with capillary columns), spectrophotometry, and atomic emission spectroscopy with inductively coupled plasma. To carry out work on the inspection of technical devices with the issuance of conclusions on the service life of their safe operation, the division has a non-destructive testing laboratory, instrumentation, regulatory and technical documentation, and specialists in the field of industrial safety. The laboratory has a license from Rostechnadzor to conduct industrial safety examinations of technical devices used to conduct industrial safety examinations of technical devices used at hazardous production facilities, which allows us to give conclusions about the suitability of a particular equipment and determine its service life.
2.2 Main results of the analysis of the enterprise’s economic activities
OJSC Khimprom is a large holding company, which includes subsidiaries. Consolidated financial statements for 2008-2009 showed an increase in the book value of assets and equity. The source of increase in the value of equity capital is the company's net profit, which tends to grow.
The value of own current assets for the analyzed period is decreasing, which is due to the rapid growth of accounts payable compared to the dynamics of current assets. In the structure of current assets, the main share is accounts receivable, which also increases in the analyzed period. An increase in accounts receivable affects a decrease in turnover rates.
In the analyzed period, a negative trend in the decline in solvency indicators was also revealed, which was caused by a decrease in the amount of own working capital.
At the same time, there is an increase in performance indicators.
Return on sales characterizes the share of profit from sales in total revenue. It increased from 24% to 28%, because sales profit grew at a faster rate than revenue. Net profit margin reflects the share of net profit in the company's revenue. There is a tremendous increase here from 10% in 2008 to 31% in 2009, this is explained by a sharp jump in net profit due to an increase in the “other expenses” item, this is due to the sale of old mercury electrolysis equipment due to the transition to new technology. The profitability of all assets of an enterprise shows the profit per each cost unit of assets and is an indicator of competitiveness. In addition, it helps to identify the impact of taxes and other payments from profits. At Khimprom OJSC there is an increase in this indicator from 28.6% to 36.2%, which indicates an increase in competitiveness due to an increase in sales profits.
An analysis of the profitability indicators of the enterprise OJSC Khimprom is presented in Table 2.
Table 2 Analysis of enterprise profitability indicators
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Indicators |
Calculation formula |
Changes |
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1. Sales revenue, million rubles. |
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2. Cost, million rubles. |
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3. Profit from sales, million rubles. |
page 1 - page 2 |
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4. Net profit, million rubles. |
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5. Average annual value of property, million rubles. |
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6. Average annual cost of insurance, million rubles. |
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7. Average annual value of OK, million rubles. |
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Profitability |
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p.3/p.1 |
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Net profitability, % |
p.4/p.1 |
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Assets, % |
p.3/p.5 |
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Own capital, % |
p.3/p.6 |
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Working capital, % |
p.4/p.7 |
Return on equity reflects the efficiency of using the enterprise's equity capital. In 2009, this ratio was 72.5%, i.e. The company uses its own capital as efficiently as possible. Return on working capital shows the ability of an enterprise to provide profit from working capital; this indicator changed from 50% to 175%, i.e. Each ruble of working capital brought 50 kopecks, then in 2009 it began to bring 175 kopecks, therefore, the efficiency of using working capital has increased. Thus, the profitability indicators of Khimprom OJSC indicate that the company’s profitability has increased, because all indicators reflecting operational efficiency have increased significantly.
To obtain a more complete picture of the financial condition of Khimprom OJSC, it is necessary to calculate such indicators as the effect of financial leverage (EFF), the strength of financial leverage (SFR), the strength of operating leverage (SOR) and the level of the cumulative effect of both levers (USE). We present the calculations in Table 3.
Table 3 Information on the financial condition of JSC Khimprom
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Indicators |
Calculation formula |
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1Return on assets (ERA), % |
From the table 2 |
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2Return on equity (REC), % |
From the table 2 |
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3Balance sheet profit, thousand rubles. |
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4 Interest on loan, thousand rubles. |
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str2-str1(1-dn) |
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1+page4/page3 |
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Revenue - variable costs/gross profit |
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Page6 *page7 |
The meaning of financial leverage is the action of increasing the return on equity capital (REC) at the expense of “other people’s money” - borrowed funds (BL), the EFR shows how much the return on each own ruble has increased compared to the economic return on all assets in percentage terms, this indicator on our the enterprise increased from 40% to 45%. The effect of operating leverage is that any changes in sales revenue generate stronger changes in current profit: Sales are growing, therefore, current profit is growing at a faster rate; Sales are falling, therefore, current profits are falling at a faster rate. At Khimprom OJSC there is practically no operating leverage, this is explained by the insignificant share of fixed costs in the total volume of production, namely this share is 0.1%. The level of total risk is measured by the value of the USE - the level of the cumulative effect of both levers. The higher the value of the ESE, the higher the total risk of the enterprise.
The ESE shows by what percentage profit will change if sales change by 1%. At this enterprise, the level of total risk is insignificant and tends to decline. This indicates stable, non-risky production.
In general, the enterprise has the necessary economic conditions to implement an investment project.
2.3 Forecasting the development prospects of VOJSC Khimprom
It is known that the capacity of the PVC market in the world and in Russia is determined not only by the volume of demand for PVC, but also by the volume of demand for caustic soda, which is obtained in the production of chlorine, as one of the two main sources of raw materials for the production of polyvinyl chloride. Forecast of PVC market capacity for the future for the period up to 2020. presented in Table 4.
Table 4 Forecast of PVC market capacity for the period until 2020
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Name |
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Demand of everything |
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Including: |
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Plastic compounds |
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Profile molded products |
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Linoleum |
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Pipes and pipeline parts |
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Container and packaging |
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Other products |
The volume of the Russian PVC market in 2020 should increase by 2.9 times compared to 2006 and reach 1,540 thousand tons per year. Moreover, the highest growth rates should be expected for such consumers as pipes and pipeline parts, containers and packaging, and profile molded products, which are the most in demand in world practice.
The availability of free space (the property of OJSC Khimprom) intended to accommodate the 2nd and 3rd stages of the Sayan Chemical Plant significantly reduces the cost of building new production facilities. The social infrastructure of Volgograd is also designed to support a large industrial complex (in addition to the existing PVC production and its continuation in the 2nd and 3rd stages, it was also planned to build an oil refinery for the production of ethylene and a phosphate fertilizer plant at the Volgograd site). Based on these factors, the production site of Khimprom OJSC and the city of Volgograd itself is the most favorable point for locating the largest gas chemical complex.
The regional project is the beginning of a long journey to develop the field. The regional project at the industrial site of JSC Khimprom provides for the construction of a gas processing complex (GPC), consisting of gas separation plants for natural gas (with the release of ethane, propane, butanes), production of ethylene, separation and liquefaction of helium. Ethylene is used at Khimprom OJSC to increase the production of polyvinyl chloride to 400 thousand tons. in year.
For the construction of a helium separation plant, Cryoplast CJSC was created on November 3, 2007, the founders being Khimprom OJSC and KRIOR LLC, a Russian manufacturer and supplier of commercial helium. In May 2007, JSC “Krioplast” completed the development of a feasibility study (project) “Helium Production”.
The regional project is already being implemented. The operator of the project is the East Siberian Gas Company, which is constructing the Kovykta - Volgograd - Irkutsk gas pipeline. The first stage is close to completion - laying a gas pipeline to Zhigalovo. The costs of JSC ESGK for the project have already amounted to about $160 million. The costs of JSC Khimprom for design work and preparation of construction are $7 million.
The implementation of the regional project ensures:
the formation of a new economic sector in the Irkutsk region;
in 2007-2011 direct investments - $1.5 - 1.8 billion.
creation of new jobs (operation period) - direct employment of more than 1 thousand jobs, employment in related industries - from 4 to 5 thousand jobs;
annual tax revenues since 2010 to the consolidated budget of the region - $35-45 million.
improving the environmental situation in the region.
new export opportunities, incl. increasing the volume of exports of chemical products to Asia-Pacific countries. The scheme of the regional project is presented in Appendix A (Table A.1), as well as the social benefits of implementing the regional project in Appendix A (Table A.2).
2.4 Feasibility of an investment project for the construction of a gas processing complex
We have developed a project for the construction of a gas processing complex.
The natural gas processing complex consists of 3 installations: natural gas processing, helium production, and ethylene production. The plant's ethylene capacity was set at 190,000 t/year. based on the needs and plans for the reconstruction of polyvinyl chloride production. Since the C2+ raw material released at the natural gas processing plant is not enough for the planned ethylene capacity, we also propose, as one of the options, to involve external raw materials in the production in an amount of about 7 tons/hour. In the project of a natural gas processing plant, you can use the licensed Cryomax technology, which is characterized by the fact that an ethane recovery rate of 95% is achieved with a minimum number of equipment at minimum energy and operating costs. The project does not provide for the possibility of autonomous operation of a natural gas processing plant; it can only work in conjunction with an ethylene plant. The design of an installation for the production of ethylene using the method of steam pyrolysis of ethane uses pyrolysis furnaces with vertical radian displacement coils of the SMK type and cassette ZIA at the outlet of each coil.
Gas separation is based on low-temperature rectification by sequential separation of the light component in distillation columns.
The project uses the world's best samples of zeolites and catalysts with promoters - unique equipment, including turboexpanders with magnetic bearings, turbocompressors with dry mechanical seals, aluminum plate multi-flow heat exchangers. In order to reduce equipment contamination (polymerization), as well as the water cycle and boiler equipment with pipelines will be treated with NALCO reagents. In general, the project was completed at a high level and corresponds to the best world complexes.
The estimate of capital costs for the design and construction of a gas processing complex according to the feasibility study of the project, carried out by us on the basis of the basic design, amounted to 520 million US dollars at January 2007 prices, including 402 million US dollars for the project.
The main reasons for the discrepancy in the assessment of capital costs for the design and construction of a gas processing complex:
The investment justification did not take into account some components necessary for the operation of the gas processing complex (Liquefied gas warehouse, Local treatment facilities, Auxiliary boilers, Sulfur-alkaline waste neutralization unit, Tar water combustion unit, etc.);
Increase in price due to increased equipment costs.
In order to reduce capital costs and obtain a firm price, a contract was concluded with Toyo Engineering Corporation (TPP, Japan) for the pre-basic design of a gas processing complex in Volgograd. Taking into account the new schedule for the supply of natural gas presented by JSC VSGC, the natural gas processing capacity was determined at 4 billion n.e. m3 per year. The feedstock for the ethylene plant in this project is ethane and propane.
The natural gas processing plant is designed using Coreflux-C2 technology. It is characterized by the fact that, with an ethane recovery rate of 95%, it has minimal energy and operating costs, due to the fact that the demethanizer reflux is formed not from recycle, but from part of the processed gas flow. The installation can operate autonomously; it includes a unit for separating the C2+ fraction into components: propane, C3/C4 fraction, butane, gasoline. It is possible to operate the demethanizer in diethanizer mode, as well as return ethane to the main gas pipeline.
All this makes the installation very flexible in terms of operating modes, and increases its viability in various emergency situations. The ethylene production plant was built under license from ABB Lumus.
The project uses components with the latest technology. So, to saturate the raw material with water vapor, a saturator, a column apparatus with a nozzle, is used, on which the raw material is saturated with water vapor. After the pyrolysis furnaces, the steam is condensed in a quenching column, and the resulting process water is purified in a DOX block supply unit. After cleaning, the process water again enters the saturator. The applied technology of a closed cycle of process water increases the efficiency of the installation, reduces harmful emissions of contaminated water, and reduces energy costs.
Pyrolysis furnaces are designed with vertical radiant coils using SRT-VI technology. In the decoking mode, combustion gases are burned in the furnace of the pyrolysis furnace, which reduces harmful emissions into the atmosphere. Gas separation uses a unique low-pressure demethanizer technology.
Gas separation is based on low-temperature rectification by sequential separation of the light component in distillation columns. The project uses the world's best samples of zeolites and catalysts with promoters, as well as unique equipment, including turboexpanders with magnetic bearings, turbocompressors with dry mechanical seals, and aluminum plate multi-flow heat exchangers. In order to reduce equipment contamination (polymerization), as well as the water cycle and boiler equipment with pipelines will be treated with NALCO reagents. The project as a whole was completed at a high level and complies with the best international standards.
The estimate of capital costs for the design and construction of a gas processing complex within the design boundaries of the TPP company amounted to 539.4 million US dollars at October 2007 prices, against 422.4 million US dollars.
The difference between capital investment estimates was $117 million. According to our proposal, the construction schedule for the gas processing complex is designed for 2 years. A feasibility study project prepared for passing the state examination, the regulatory period for which will be 14 months. The only correct solution for the construction of a gas processing complex from the point of view of reducing capital and operating costs and compliance with industrial safety rules is the construction and commissioning of a gas processing complex as part of all installations simultaneously, as provided for in the projects of engineering companies. Equipment for a gas processing complex must be selected in such a way as to ensure basic performance indicators
Installations, namely:
Reliability and safety of operation;
Environmental safety, ensuring minimal emissions of harmful substances into the atmosphere and water bodies;
Ensuring high technological guarantee indicators;
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Investment project – justification of the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and duly approved standards (norms and rules), as well as a description of practical actions for making investments (business - plan).
Payback period of the investment project is the period from the date of commencement of financing of the investment project until the day when the actual volume of investments is equal to the amount of net profit accumulated by the investor and accrued accrued depreciation on depreciable property owned by the investor, created as a result of investment activities.
The basis of a firm's investment decision is the calculation of the present value of future earnings. The firm must determine whether future profits will exceed its costs or not. The opportunity cost of investment will be the amount of bank interest on capital equal to the volume of the proposed investment. This is the essence of the firm's investment decision. At the same time, the choice of a company is complicated by the presence of a situation of uncertainty that arises due to the fact that investments are usually long-term.
In financial and investment calculations, the process of reducing future income to current value is usually called discounting.
When assessing the feasibility of investments, a discount rate (capitalization) is established, i.e. interest rate characterizing the investor's rate of return (a relative indicator of the minimum annual income). Using discount (accounting interest), a special discount factor (based on the compound interest formula) is determined to bring investments and cash flows in different years to the present moment.
Discount rate in a broad sense, it represents the opportunity cost of fixed capital and expresses the rate of return that the company could receive from alternative capital investments.
For a constant discount rate E discount coefficient a t determined by the formula:
where t is the number of the calculation step.
The result of comparing two projects with different distributions of the effect over time can significantly depend on the discount rate. Therefore, her choice is important. Typically this value is determined based on the deposit interest on deposits. We need to accept more of it at the expense of inflation and risk.
When all capital is borrowed, the discount rate is the appropriate interest rate determined by the terms of interest payments and loan repayments.
When capital is mixed, the discount rate can be found as the weighted average cost of capital, calculated taking into account the capital structure and tax system.
Any company in any market is forced to invest due to the wear and tear of fixed capital in the production process in the hope of increasing its profits. In this regard, the question arises about the advisability of making investments, will they bring additional profit to the company or lead to a loss?
To answer this question, it is necessary to compare the volume of planned capital investments with the current discounted value of future income from these investments. When expected returns are greater than the investment, the firm can invest. If the ratio of these values is inverse, it is better to refrain from investing to avoid losses.
Therefore, the investment condition will look like:
Ie< PDV,
where Ie is the planned volume of investment,
PDV is the current discounted value of future earnings.
The difference between the values presented in the formula is usually called net present value (NPV).
Net present value(net present value, net present value, integral effect) is defined as the sum of current effects for the entire calculation period, reduced to the initial step. Net present value is the excess of the integral inflow of money over the integral outflow (costs).
Obviously, the company makes an investment decision based on a positive net present value, i.e. when (NPV > 0).
Profitability index– the ratio of the sum of the reduced effects to the sum of discounted investments.
Internal efficiency ratio(internal rate of return, internal rate of profitability, rate of return on capital investments) is a discount rate at which the integral economic effect over the life of the investment is zero.
When the internal efficiency ratio is equal to or greater than the rate of return on capital required by investors, investment in a given project is justified. Otherwise, they are inappropriate.
