All conclusions about the project concerning its efficiency, financial stability and risks are based on the analysis of the created financial model. In such conditions, it is extremely important that the basic forecast of income and expenses is reasonable, justified and balanced.
financial plan is not well-founded, it can render all subsequent characteristics useless. These parameters play a key role in the decision-making process and include:
Basic investment performance indicators such as net present value (NPV), payback period (PBP), and internal rate of return (IRR). Although minor adjustments may be made to this list in some cases, this is rare. These parameters are analyzed from both the investor and the lender perspectives, which implies the need to allocate net cash flow to each of the participants.
Total debt coverage is a conduit cn phone data ratio that a lender uses to determine what portion of a project's revenue will be used to pay off the loan. The lender sets a limit on this portion to ensure that the debt is repaid reliably.
This ratio is calculated as the net income of the project divided by the amount that must be paid in interest and principal. Typically, a normal value for this ratio is between 1.2 and 1.5, depending on how stable the project's income is. This means that about a third of the income should remain with investors, which helps the lender be confident in the reliability of payments even if changes occur in the company's operations.
Since almost no project has fully guaranteed commercial characteristics, implementation takes place in conditions of uncertainty. Even the most thorough study may turn out to be only an assumption. Therefore, the lender not only checks the baseline forecast, but also assesses the limits to which the initial data can change so that the project still remains successful. To do this, a sensitivity analysis is carried out to understand how changes in key parameters will affect the initiative and determine the boundaries within which the project will remain financially viable and effective.
Evaluation of efficiency in the context of a pessimistic scenario is a deepening and expansion of the previous analytical block. In this case, specialists focus on the analysis of one or several project parameters that deviate from the baseline scenario. The main task is a detailed study of potential losses, identifying the conditions under which they may occur, and developing strategies to minimize them.
This short list of indicators and tools can be expanded as needed by various analytical methods. However, in most cases this is not required. This is explained by the fact that project financing is often associated with a high degree of uncertainty and significant limitations in the application of financial mathematics. The main focus is on improving the quality of the model used to calculate the presented list of indicators.
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