Any person in life will face a number of situations where they will have to make financial decisions, specifically those that have to do with investment, which is the subject at hand, additionally we must consider that also knowing how to discern between different investment projects It can not only be useful in the finances of a company but also in personal finances as well as in decision making in general.
In recent years, starting your own business has been encouraged in all areas, as expected, not everyone has the ability to select which of all the existing business options is the most feasible, that is, the least risky and most profitable.. In order to make the best decision, it is necessary to learn some simple techniques to determine the investment project that best meets our financial expectations. As it is perfectly known all investors are looking for that project that maximizes their profitability, they always have in mind the questions of How much will I earn in relation to what is invested? When will I get my investment back? And how much risk does this investment represent?Apparently these are the three questions that investors question the most in the different investment projects in which they are interested.
Generally, those people who are looking for a profitable business, prior to making a decision among all the options they consider viable, submit all their options to a financial evaluation process to determine which is the best option, to later select from Among the best, the closest to what is desired, that is, the option that most meets the investor's expectations.
In order to select the best investment project, it is advisable to make a capital budget, which is a technique used by organizations to evaluate and select long-term capital investment projects, in order to obtain the best investment. that maximizes the return for the shareholders as well as to benefit in the best way everyone involved with the organization, either directly or indirectly. These types of decisions are transcendental since both their benefits or losses will be in the long term, this due to the fact that in case of being profitable, the investment in operation will remain until it ceases to be so, while otherwise the decision to divest will be made, but that is not momentary,which takes a process to recover the money invested in case this turns out.
Obviously it is not only necessary to make a financial evaluation of the project, it would be a simplistic result, it is necessary to additionally make an analysis of the external conditions that arise in the environment, I mean to evaluate what are the conditions that prevail in the place where it is planned invest, such as conditions, both micro and macro economic, political, social, competition analysis, trade, exchange rate, to name a few, all these variables can alter the profitability of the project, the drawback of this is that they are uncontrollable, that is why, in addition to the financial evaluation, it is extremely important to make this evaluation additionally in order to make the final investment decision more forceful.
To select the best investment project, it is recommended to carry out this basic process that consists of five steps, which helps us to carry out a methodology that allows us to reach the best investment projects. The five steps to follow are listed and explained below.
- Preparation of proposals. All those who are involved in the company make investment proposals with the aim of expanding operations or to venture into new businesses that are attractive to the company, whether new or in different industries. Proposal review and analysis. Generally, a financial office is in charge of reviewing and analyzing in detail the profitability of those investment projects that are attractive for the improvement of the company's operations or the incursion of new businesses. Decision making.Already analyzed and with a detailed study of the investment projects in hand, the indicated people will have to analyze them in order to make decisions about which are the projects that benefit the company if so, it is also possible to reject them for lack of profitability or compatibility with the company or also because the economic and social conditions are not favorable. Implementation.This is the stage where the project materializes, carrying out, that is, making it a reality with the aim that the results are obtained as soon as possible. It is the stage where the project is already underway and produced so that it meets the initial objective. This is the moment where the results of the project must be observed and measured to compare it with what had been predicted, if there were any Variant must be corrected to reorient the investment project or in the event that it is concluded that it is not self-sustaining as well as profitable to start planning for divestment as well as bankruptcy.
All companies as well as people have limited resources, which is why it has to determine which is the most convenient, which leads us to the term capital rationing since it is a limited resource and it should be used in the most rational way possible., with the aim of obtaining the highest possible profitability in financial terms as well as in the shortest possible time.
Three other of the most used elements to evaluate the feasibility and financial profitability of the projects are the time of the recovery of the investment, the net present value and the internal rate of return. With these three financial elements, companies can make certain decisions about which is the most appropriate investment project for the company, taking time to recover the investment, when it generates profitability and the net amount that it will earn. These are just one more tool that helps to comprehensively evaluate investment projects.
After reading this small excerpt, I consider that we are already more oriented and trained to be able to make a better investment decision, this can not only be applied to business investments but additionally they can be applied to personal and family financial life. It seems that this information is highly recommended to use so that our investment decisions are based on both qualitative and quantitative studies, in reality these types of studies are not exclusive but rather are complementary to each other.
Finally, I just want to encourage you to invest, we already have a tool that will allow us to make better decisions, but we must not forget that the best decisions are also made based on experience, all we have to do is lose our fear and invest to that based on the practice of investment, better results are obtained, in addition so that in the subsequent, better results are obtained, which obviously are intimately with good decision-making.
Bibliography
- Gitman, L. (2012). Principles of financial administration. Pearson Publishing. Mexico: 2012.Parkin, M. (2009). Principles of economics. Pearson Publishing. USA: 2009.Griffin, W. (2008). Business. Adisson Wesley Publishing House. USA: 2008.
