Investment Opportunities

5 Key excerpts on "Investment Opportunities"

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  eBook - ePub

  Business Economics

  • Rob Dransfield(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  The first part of the chapter looks at a key financial planning decision: whether or not to invest and how to appraise an investment opportunity. Investment involves using scarce resources to create capital to enable future growth. An investment decision is thus important both from the perspective of the economy and for the business carrying out the investment. In evaluating Investment Opportunities it is important to use investment appraisal methods. The chapter therefore explores different ways of appraising investment: the payback method, discounted cash flows and accounting rate of return.

  Finally, the chapter outlines financial planning within the context of the various sources of finance that are available to a business. Some sources of finance expose a business to greater risks than others, and this can be particularly dangerous when an economy is in recession and funds flowing into a business may be reduced.

  17.2  What is investment?

  Investment is a particularly important aspect of economic growth. Economists identify investment as an expenditure on (or purchase of) items that increase productive capacity (e.g. the purchase of a machine or machine tool). In addition, social investment involves investment in the capacity to increase social welfare (e.g. by building a new school or hospital). Investment is particularly important as it typically creates jobs and new expenditure in an economy which acts to boost growth. Investment is carried out by both the public sector and the private sector of the economy. This chapter focuses on various economic techniques that can be used to appraise the effectiveness of investment projects.

  The development and growth of a business usually takes place in a series of separate steps or projects. These can range from the purchase of an additional delivery van to the complete takeover of another business. These projects are investments because they involve adding to or replacing some of the operating assets of the business.

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  eBook - ePub

  Market Opportunity Analysis

  Text and Cases

  • Robert E Stevens(Author)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  Part I:Introduction to AssessingBusiness Opportunities Passage contains an image Chapter 1 Assessing Business Opportunities: An Overview

  The Importance of Opportunity Analysis

  The twenty-first century has ushered in an era of business that is perhaps one of the most challenging in history. Markets for many products have weakened; major firms face some of their most critical financial crises; international competition for major product categories is at an all-time high; and financial markets are in an upheaval due to interest rate changes, uncertainty over future rates, and shifting government policies on tax decreases, increases, and deficit spending. These are only some of the most obvious environmental factors business managers must cope with.

  Although these changes have wreaked havoc in many industries, they have also caused many managers to reevaluate the basis of success in their own industries, and in business in general. Many realized that the key to success is planning—not just on a short-term basis, but on a time scale that is long-run or strategic in orientation.

  This book concentrates on opportunity analysis, which is an intricate part of the strategic planning process. It covers not only how opportunity analysis relates to strategic planning, but also presents the techniques that can be used to carry out opportunity analysis. Thus, it is oriented toward building analytical skills for an individual manager by describing what should be done and how to do it.

  Factors Influencing Feasibility Analysis

  The strategic alternatives of an enterprise are influenced by a number of factors. The factors are of three types: external, financial, and internal. External factors include market size, competition, technology, inflation and the economy, government regulations, political conditions, social change, and nature.

  External Considerations

  Market size.

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  eBook - ePub

  Return on Investment Manual

  Tools and Applications for Managing Financial Results

  • Robert Rachlin(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  One other consideration in financing certain types of investments is the use of venture capital. Venture capitalists can be used to create Investment Opportunities by taking high risks in entrepreneurs. They will individualize and negotiate financial structures and maintain direct and continuing involvement of the investors. Further consideration and analysis should be done to evaluate whether venture capital is a viable alternative for capital and other types of investments.

  Decision-Making Strategies

  • Establish an effective capital investment program. • Tie the capital investment program to the long-range plans of the company. • Classify capital investments into categories to allow for establishing return on investment objectives by classification. • Determine how much funds will be allocated by project classification. • Always require capital investment proposals to have alternatives— with full comparative analysis. • Assign risk analysis to each capital investment proposal. • Measure the impact of each type of capital project on the anticipated overall return on investment to the company. • Develop a checklist for submitting a capital investment proposal. • Make sure the capital investment program has a policy and procedure manual outlining all the details of submitting a capital investment proposal. • Estimate the cost of financing capital investment proposals and compare it to the overall return objective. • Focus on long-term projects that contribute to increased productivity, cost reduction, and energy efficiency.

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  Market Analysis

  Assessing Your Business Opportunities

  • William Winston, Robert E Stevens, Philip K Sherwood, John Paul Dunn(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  The analysis begins with a detailed study of the environment in which the proposed business would operate. This includes not only the legal, political, economic, social, cultural, and technological environment, but also market size, growth trends, and consumers’ attitudes and behavior. It also involves a study of current and potential competitors who may be going after the same customers you propose to attract. These factors are external to the organization or person contemplating the new venture and therefore a great deal of diligence is required for a thorough analysis of these factors. This usually involves a substantial commitment of time and money to collect the information used in the analysis.

  If this analysis indicates that these factors are favorable to the potential business, then an analysis of the financial implications of the opportunity should be undertaken. The financial analysis is the key to determining the potential profitability of the business and the expected return on investment. The results of this analysis provide the information which can be used to attract investors and/or lenders who may be approached to obtain capital for the venture.

  The final area of analysis involves a study of internal factors which affect the decision to pursue a given opportunity. The organization or individual’s purpose, objectives, and resources must be analyzed in relation to the proposed opportunity. An opportunity, even a potentially profitable one, may not “fit” with the purpose, the objectives, or the resources of the organization. Such opportunities are foregone for others that do “fit.”

  As the diagram emphasizes, a thorough study of the opportunity is completed before a decision is made to pursue it. Rushing into a decision without the type of analysis described in this book increases the chances of failure. While failures cannot be completely eliminated because of unforeseen circumstances, the chance of success can be greatly enhanced by thoroughly assessing the opportunities before commitments are made. An article in Changing Times dealing with factors that lead to failure listed “guessing instead of digging” as the number one way to scuttle a new business.1

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  Project. Program. Change

  • Roland Gareis, Lorenz Gareis(Authors)
  • 2018(Publication Date)
  • Taylor & Francis

    (Publisher)

  The contributions made by projects to fulfilling the strategic objectives of an organization must be communicated to the members of the project organizations and to the project stakeholders. This is a project management responsibility. This creates “sense” and contributes to motivating the members of the project organizations.

  On the other hand, project results also influence an organization’s strategic objectives. The relationships between an organization’s strategic objectives and projects are shown in Figure 3.3 . Managing these relationships as part of project portfolio management is also a task of strategic managing.

  Fig. 3.3 : Relations between strategic objectives of an organization and projects.

  3.2 Investment Definition and Investment Types

  Investment Definition

  In the literature, an investment is defined as the transfer of capital into fixed and current assets.8 In fiscal terms, an investment is understood as a process which is characterized by a series of cash outflows and a series of cash inflows.9 The predilection for the fiscal definition can be explained by its operationality. It allows traditional investment analysis methods to be used as a basis for decision making.

  Here an investment is understood as a chain of business processes required to ensure an organization’s capacity to provide services. For this not only fixed and current assets are necessary, but personnel and organizational competencies must also be created, and medium-term to long-term collaborative relationships with stakeholders must be established.10

  Investments may relate to various objects—namely, to a product or service, a market, the organization, the personnel, the infrastructure, the financing, and a stakeholder relation. Therefore, unlike in accounting, the definition of an investment used here is not limited to depreciable fixed assets.

  Definition: Investment

  An investment is defined as a chain of business processes required to ensure an organization’s capacity to provide services. A differentiation may be made between product or service-related investments, market-related, organization-related, personnel-related, infrastructure-related, financing-related, and stakeholder-related investments.

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