Capital Investment Analysis / Financial Analysis

Capital investment decisions essentially include the commitment of large sums of money which affect the business for several years. These decisions require purchasing of items such as land, machinery, buildings, feedstock, or equipment, which is one of the most important decisions that a business manager undertakes. In addition, purchase of a capital item requires immediate payment, whereas the income or benefits need time to increase. Since the benefits are reliant on future events, an intensive evaluation of investment options becomes inevitable.

Capital investment analysis evaluates long-term investments which might involve fixed assets such as equipment, machinery, or real estate. This process aims at identifying the most profitable business option. In performing a capital investment analysis, businesses may employ such methods as discounted cash flow analysis, risk-return analysis, risk-neutral valuation, and utility theory. Return on investment (ROI) is one approach of considering profits with regard to capital invested. Thus, an investment decision, a financing decision, and a dividend decision form a capital investment analysis.

Lucintel’s Capital Investment Analysis provides financial statements (cash flow, P & L, and balance sheets) for next 25-30 years with payback period and internal rate of return (IRR). We replicate typical operations for various input conditions (cash, feedstock, labor, utility, equipment depreciation, etc.) and assess project returns for various scenarios.

Making this investment or capital allocation decision needs evaluating of the value of each opportunity or project which is a function of the size, timing, and predictability of future cash flows. Our process contains two fundamental tasks:

1. Economic profitability analysis to determine whether the investment will contribute to the long-term profits of the business.

2. Financial Feasibility analysis to find out if investment is potential enough to produce adequate cash income to make the principal and interest payments on borrowed funds that was used to buy the asset.

We perform both the analyses which help the management to make a final decision to accept or reject a particular project. We look into various competitive advantages of a company to identify profitability and expenses in various scenarios to make confident business decisions.

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