Financial study

The financial study shows the amount of capital required for the project sources of capital ways of spending it investment returns profitability of the project and other financial considerations

Islam Mohamed - • Corporate finance management

What is a financial study

It is one of the most important basic studies that you must be careful to prepare with high accuracy, and the financial study shows the amount of capital required for the project, sources of capital, ways of spending, investment returns, profitability of the project and other financial considerations.

As you seek. Financial study to collect, record and finance financial data extracted from other studies, which are in the following form.

Marketing Study

Production Estimation Production Agency

Order size

Unit Sale Price

Advertising expenses.

Technical study

Establishment costs

Estimating fixed asset needs

Estimating administrative needs.

This is in order to help you prepare the financial statements of the project during a certain period of time quarterly semi-annually to measure the profitability or loss of the project and what are the sources and uses of funds From the table of estimating the needs of assets and the needs of establishing the project and the initial cost of the project we prepare a list of financial position and from the marketing study we prepare an income statement to estimate demand, sales and production volume in addition to operational and administrative expenses Technical study and media expenses in the marketing study and then access to the cash flow statement Which helps to estimate cash inflows and outflows from operational, financing or investment operations.

What is the purpose of the financial study.

The financial study aims to determine the ability of your project to meet its obligations by preparing estimates of the project's revenues and operational and investment costs over the useful life of the project and seeks to ensure the ability of the project through net cash flows to recover the cost of capital investments incurred by the investor. During an acceptable payback period to ensure the profitability of the project and its financial feasibility

What is the required start-up venture?

We mean the amount of money that a project needs to start and be able to be self-sufficient in cash flows, as sufficient capital must be provided to operate the project for at least one to two years, due to the size of the project, small companies usually determine capital requirements internally individually. Large companies use their own banks or investment firms to determine capital requirements for any round. Funding or starting a business.

How is the optimal financing structure of the project determined?

You need here to determine the best combination of funding sources to cover the investment cost of the project and the financing structure consists of a set of elements that constitute the side of liabilities loans or private property funds and the policy of any project regarding its financing structure involves harmonization between risks and returns in a way that maximizes the value of the project

How to calculate the weighted average cost of funds (WACC)

You can estimate the capital structure such as by calculating more debt and equity while maximizing the value of the project that is lower than the average audited cost of capital and the lower the cost of capital the greater the current almost future cash flows if the main objective is to calculate the average and eat of the discounted company. at the discount rate.

The weighted cost of capital is to reach a capital structure in which there is low value and therefore the value of the company is high.

What are the important financial metrics to know the feasibility of the project?

There are several financial metrics that you can use to determine the profitability of the project and its feasibility of investment or not before starting the project and a year that was exposed here in some installments and assuming that the project.during his study, expected financial statements were prepared for him for a period of 3 years, including the statement of financial position, income statement and cash flow statement, as these estimated statements help the analysis process decision-making and give an overview of the project.

Break Even Analysis

This analysis is used to find out the level at which the costs of the project can be covered by a specific volume of sales, and at this point the project does not achieve any profit and does not achieve any losses, so the production in excess of the break-even point guarantees the profits of the project, while the low production from this point means that the project and knowledge have become this level, the fixed costs of production and the variable cost of the unit as well as the unit price must be determined through this equation The volume of sales in units is equal to Saturday costs on the unit price decrease variable costs.

Payback period

It is the period of time required to equalize the investment costs of the project with the net annual cash flows, where the project can recover all its investment costs, and based on this measure, the project that recovers investment costs in the shortest possible period of time is the most economically feasible, as the payback period is calculated as follows.

Investment Cost/Annual Cash Flow.

Net Present Value

This measure is based on the discount rate, which uses the time value of the transfer to know the present value of future cash flows and to simplify this in the case of self-financing of the project, the bank interest rate can be a special rate where it is considered a cost. Alternative opportunities in the event that the investment amount is deposited in the bank against a deposit or equivalent to the interest rate on bank financing and in the case of borrowing to finance the project, where they are calculated in a simplified manner as follows.

Net present value at the appropriate discount rate. = present value of cash inflows - the present value of external cash flows.

Internal Rate of Return (IRR)

It is a measure used by companies to decide on the feasibility of investing in the long term and is defined as the discount rate that makes the net present value of all cash flows from a particular project equal to zero 0 In general, the higher the internal rate of return of the project, the more attractive it is for investment, in other words, if the internal rate of return is higher than the cost of capital of the project, this will represent the added value of the project.

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