Is the topic of investments relevant for Russia?Perhaps the answer to this question will be Rosstat information for 2013, indicating that the annual flow of foreign investment in the country's economy, compared with last year, increased by 40%. In general, the accumulated foreign capital in the Russian economy at the end of last year amounted to 384.1 billion US dollars. Most of the investment (38%) is in the manufacturing industry. 18% of their volume is invested in trade and repairs, almost as much (17%) in the mining industry.
According to statistics, since 2012,economic observers have determined that Russia ranks sixth in the world in its investment attractiveness and at the same time is the leader among the CIS countries in this indicator. In the same 2012, foreign direct investment in the Russian market covered 128 large objects. The dynamics of the process is obvious. Already in 2013, according to Rosstat, only the volume of foreign direct investment in the Russian economy increased by 10.1% and reached $ 170.18 billion.
There is no doubt that all theseinvestments are made meaningfully. The investor preliminarily, before investing his own funds, of course, evaluates the attractiveness of the project commercially, financially, technically, socially.
The above statistics has a "technical"the side. This process is deeply thought out according to the well-known principle, according to which one should first measure seven times. The essence of investment attractiveness as an economic category lies in the pre-determined by the investor benefit immediately before investing its capital in a particular company or project. When making investments, attention is paid to the solvency and financial stability of a startup at all stages of the development of the funds invested in it. Therefore, the structure of the investment itself, as well as its flows, must, in turn, be optimized.
This is achievable if a company making such an investment of funds systematically exercises strategic management of investments in a startup company. The last is:
The previous volume of investment activity of a start-uper is studied, the possibility of reducing current costs, increasing the technological level of production is being considered in priority.
When forming a strategy, the legal conditions for its implementation are taken into account, the level of corruption in the economy segment is assessed, and a market forecast is made.
They are divided into static and dynamic.When using static methods, substantial simplification is allowed - the cost of capital is constant over time. The effectiveness of static investments is determined by their payback period and efficiency ratio. However, such academic indicators are unsuitable in practice.
In the real economy, to evaluate investments more oftenuse dynamic indicators. The topic of this article will be one of them - net present value (NPV, aka NPV). It should be noted that, besides him, use such dynamic parameters as:
But still among the above indicatorsin practice, net discounted income remains central. Perhaps the reason is that this parameter allows us to correlate the cause and effect - the capital investment with the amount of cash receipts generated by them. The feedback contained in its content has led to the fact that NPV is perceived as a standard investment criterion. What does this figure still underestimate? These issues will be covered in the article as well.
Net present value is attributed to methods.discounting cash flow or DCF methods. Its economic sense is based on a comparison of IC investment costs and adjusted future cash flows. Essentially, the NPV is calculated as follows (see formula 1): NPV = PV - Io, where:
The above NPV-formula simply shows cash incomes.
Of course, the above formula (1) must becomplicated, if only to show in it the mechanism of discounting. Since the inflow of funds is distributed in time, it is discounted by means of a special coefficient r, which depends on the cost of investments. By discounting a parameter, a comparison of cash flows of different time (see Formula 2) is achieved, where:
NPV formula should take into account cash flowscorrected by a discount (coefficient r), determined by the analysts of the investor in such a way that the investment project takes into account both the cash inflow and the cash outflow in real time.
According to the above method, the relationshipinvestment efficiency parameters can be represented mathematically. What regularity does the formula that defines the essence of NPV express? What this indicator reflects the cash flow received by the investor after the investment project is implemented by it and the cost recovery provided for in it (see Formula 3), where:
Net present value (NPV-formula,The above) is calculated as the difference between the total cash receipts actualized at a certain point in time for risks and the initial investment. Therefore, its economic content (meaning the current version of the formula) is the profit received by the investor with a powerful one-time initial investment, that is, the added value of the project.
In this case, we are talking about the NPV criterion.Formula (3) is already a more realistic tool for a capital investor, considering the possibility of making an investment from the point of view of subsequent benefits. Operating with cash flow updated at the current time, it is an indicator of profit for the investor. Analysis of its results really affects his decision: to make investments or abandon them.
What do negative values tell investorNPV? That this project is unprofitable, and investment in it is unprofitable. He has the opposite situation with a positive NPV. In this case, the investment attractiveness of the project is high, and accordingly, such an investment business is profitable. However, it is possible that the net present value is zero. It is curious that in such circumstances capital investments are made. What does an NPV investor testify to? That this investment of his will expand the market share of the company. It will not bring profit, but it will strengthen the state of the business.
Investment strategies are changing the world around us.Well-known on this subject said the famous American writer and businessman Robert Kiyosaki that the risk is not the investment itself, but the lack of management. At the same time, the constantly progressing material and technical base forces investors not to make one-time investments, but to periodical investments. The NPV of the investment project in this case will be determined by the following formula (3), where m is the number of years during which the investment activity will be carried out, I is the inflation coefficient.
Obviously, to make calculations using the formula (4),not using ancillary tools, is quite time-consuming. Therefore, the practice of calculating the indicators of return on investment with the help of tabular processors created by specialists (for example, implemented in Excel) is quite common. Characteristically, to evaluate the NPV of an investment project, several investment flows should be taken into account. In this case, the investor analyzes several strategies at once in order to finally clarify three questions:
The most common way is practicallycalculate the real viability of an investment project - is to determine for it the parameters NPV 0 at (NPV = 0). The tabular form allows investors, without wasting time, without asking for the help of specialists, to visualize various strategies in the shortest time and, as a result, choose the most efficient variant of the investment process.
How, in practice, investors produce a forecastNPV calculation in Excel? An example of such a calculation will be presented below. The methodological provision of the very possibility of determining the effectiveness of the investment process is based on the specialized embedded NPV function (). This is a complex function that works with several arguments typical of the formula for determining net present value. Let us demonstrate the syntax of this function:
= NPV (r; Io; C4: C11), where (5) r is the discount rate; Io - initial investment
CF1: CF9 - project cash flow over 8 periods.
CF investment project stage | Cash flow (thousand rubles) | Discount | Net present value NPV |
1 | -2000 | 10.00% | 186.39 thousand rubles. |
2 | 800 | ||
3 | 1000 | ||
4 | 1100 | ||
5 | -1840 | ||
6 | 520 | ||
7 | 840 | ||
8 | 1100 | ||
9 | -600 |
Overall, based on an initial investment of 2.0 millionrub. and subsequent cash flows in the nine stages of the investment project and a discount rate of 10%, the net present value of NPV will be 186.39 thousand rubles. The dynamics of cash flows can be represented in the form of the following diagram (see diagram 1).
Chart 1. Cash flow of the investment project
Thus, we can conclude about the profitability and prospects of investment shown in this example.
Современный инвестиционный проект (ИП) It is considered nowadays by economic theory in the form of a long-term capital investment schedule. At each time stage it is characterized by certain incomes and expenses. The main item of income is revenue from the sale of goods and services, which are the main goal of such an investment.
To build an NPV graph, one should considerhow this function behaves (cash flow materiality) depending on the argument - the duration of investments of various NPV values. If for the above example, then at its ninth stage we get the cumulative value of private discounted income of 185.39 thousand rubles, then, having limited it to eight stages (say, by selling a business), we will reach the NPV 440.85 thousand rubles. Family - we will enter a loss (-72.31 thousand rubles), six - a loss will become more significant (-503.36 thousand rubles), five - (-796.89 thousand rubles), four - ( -345.60 thousand rubles.), Three - (-405.71 thousand rubles.), Limiting itself to two stages - (-1157.02 thousand rubles.). The indicated dynamics shows that the NPV of the project tends to increase over the long term. On the one hand, this investment is profitable, on the other hand, a steady investor's profit is expected from approximately its seventh stage (see Diagram 2).
Diagram 2. NPV Chart
Chart 2 analysis reveals twoalternative options for a possible investor strategy. Their essence can be interpreted very simply: "What to choose - lower profit, but immediately, or more, but later?" strategies we enter the phase of sustainable returns.
In addition, we note that the value of NPV depends on the discount rate.
One of the components of formulas (3) and (4), according to whichthe NPV of the project is calculated, is a certain discount percentage, the so-called rate. What does she show? Mainly, the expected inflation index. In a steadily developing society, it is 6–12%. Let's say more: the discount rate directly depends on the inflation index. Recall the well-known fact: in a country where the inflation rate exceeds 15%, investments become unprofitable.
У нас есть возможность проверить это на практике (we have an example of calculating the NPV using Excel). Let us recall that the NPV indicator calculated by us at a discount rate of 10% at the ninth stage of the investment project amounts to 186.39 thousand rubles, which demonstrates profit and interests the investor. Let's replace the discount rate in the Excel table by 15%. What will the NPV () function demonstrate to us? The loss (and this is at the end of the completion of the nine-stage investment program!) Is 32.4 thousand rubles. Would an investor agree to a project with a similar discount rate? By no means.
If we conditionally reduce the discount to 8% before calculating NPV, then the picture will change to the opposite: net present value will increase to 296.08 thousand rubles.
Thus, there is a demonstration of the advantages of a stable economy with low inflation for successful investment activities.
What results in successful accounting by investorswinning strategies? The answer is simple - to success! Imagine the rating of the largest Russian private investors for the last year. The first position is occupied by Yuri Milner, co-owner of Mail.ru Group, who founded the DTS fund. He successfully invests in Facebook, Groupon Zygna. The scale of its investment is adequate to the modern world. Perhaps that is why he occupies the 35th position in the world ranking, the so-called Midas List.
The second position belongs to Viktor Remshey, who in 2012 made a brilliant deal to sell 49.9% of the Begun service.
The third position is occupied by Leonid Boguslavsky,co-owner of about 29 Internet companies, including the megastore Ozon.ru. As you can see, the three largest domestic private investors invest in Internet technology, i.e. the sphere of intangible production.
Is this specialization random?Using the NPV definition tool, we’ll try to find the answer. The above-mentioned investors, due to the specifics of the Internet technologies market, automatically enter the market with a smaller discount, maximizing their benefits.
Modern business planning in terms of calculationsROI and Criticality to Changes in Expenditures are now widely used in preliminary analysis of efficiency, including the determination of net present value. For investors, determining the sustainability of indicators of the basic variant of an investment project is of great importance.
Универсальность NPV позволяет осуществить это, analyzing the change in the parameters of the investment project with its zero value. In addition, it is a fairly technological tool, implemented for a wide range of users in standard tabular processors using built-in functions.
It is so popular that in RussianOnline even posted online calculators to determine it. However, Excel toolkit allows you to analyze more investment strategy options.
