The difficult economic situation in the world posed a difficult question to many: how not to lose money savings but generate profits. In the context of the economic crisis, this is a rather difficult question, and the answer to it is not obvious to many. However, money investment is one of the effective economic approaches that come to mind. What’s important in the investment business? How to make the right investment decision? And what Exinity can do for you? Let’s figure out these together.
Making Strategic Investments
Any investment in decision making is a complex process. Numerous specialists and managers are involved in it, which ultimately influence whether the project will be accepted and implemented, or it will be recognized as ineffective. Let’s discuss this process so that you could decide on investment in stages.
The justification of investment decisions is divided into the following stages:
1) Obtaining data about the project, their primary analysis. At this stage, the researcher collects all available information about the project.
2) Formation of cash flows, including the forecasting procedure. If necessary, it is possible to include in the calculation of the cash flow an estimate of the residual value of the investment alternative.
3) Estimation of the discount rate for alternative investments.
4) Conducting a direct assessment of the investment alternative based on the main assessment criteria, such as net value, internal rate of return, etc. This is how the conclusion about the effectiveness of the alternative under existing conditions is made.
5) Analysis of the investment alternative sensitivity to the main variables of external factors.
6) Risk assessment using the Monte Carlo method, scenario analysis, etc. The choice of the analysis method is determined based on project data.
As Exinity claims, the investor will have to make a great effort to implement the first stage — obtain data about the project since they include heterogeneous information. The production and marketing divisions of the company are involved in the process of obtaining the information; technical and engineering services are often involved as well, which significantly complicates the process.
The main principles that investors usually follow when managing projects or taking part in Forex trading are as follows:
- economic efficiency of the project,
- social efficiency of the project,
- compliance of the project with the requirements of environmental, socio-political security, or construction projects.
Thus, the principle of economic efficiency of a project is based on economic criteria. It is on their basis investors make decisions within the framework of project management. These include:
- Return on investment: investors usually assume that their investments will pay off within a certain period, which is called the payback period;
- Profit levels: achieving a maximum return. Each investor expects to receive a pre-planned return, for example, when registering on Forextime. Profit maximization, the achievement of maximum investment profitability are the general economic goals of any investor. To implement this principle, an investor needs to apply project evaluation methods that allow the selection of more profitable alternatives;
- Money efficiency: this refers to the sufficiency of own and borrowed funds at any given time. The principle of compliance with the adequacy of financial resources is obvious since the opposite situation will lead to the impossibility of implementing the project in a specific period or to delays in its implementation;
- The sufficiency of resources (labour, time, and others) at each moment of time: the need for the sufficiency of other resources for the project implementation is also obvious; the manager must understand how many different resources he should have at each moment of the project implementation, how many people should be involved in the implementation of the project, etc.;
- Investment risk: each investor evaluates the risk by investing in a particular project. It may be a start-up in South Africa or a leading company in the US. As a rule, the investor plans a system of measures that will minimize this risk;
- Following the schedule of planned activities.
In the process of working on a project, the investor may need to adjust many parameters of the project. He should limit himself only to the basic parameters and minimize the resources that he can invest in a particular project. Thus, he can carry out the optimal distribution of basic resources in the areas of action.