Anyone in life will face several 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 knowing how to discern between different investment projects can be useful not only 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 is to be expected, not everyone can select which of all the existing business options is the most feasible, that is, the least risky and most profitable. To make the best decision, it is necessary to learn some simple techniques to determine which investment project best meets our financial expectations. As is perfectly well known, all investors are in search of a project that maximizes their profitability, they always have in mind the question of how much will I earn from the investment? When will I recover my investment? And how much risk does this investment represent?

Generally, those people who are looking for a profitable business, before deciding within 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, those closest to what is desired, that is, the option that best meets the expectations of the investor.

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, to obtain the best investment. that maximizes the return for the shareholders as well as benefits in the best way for all those 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 is because if it is profitable, the investment will remain in operation until it ceases to be so, while otherwise a decision to divest will be made. , but that is not momentary,

Obviously, it is not only necessary to make a financial evaluation of the project, as it would be a simplistic result, but it is also necessary to analyze the external conditions that occur in the environment, I mean to evaluate what are the conditions that prevail in the place where it is planned invest, such as economic conditions, both micro and macro, political, social, competition analysis, commercial, exchange rate, to name a few, but all these variables can also alter the profitability of the project, the drawback of this is that they are uncontrollable, which is why, in addition to the financial evaluation, it is extremely important to carry out this evaluation in an additional way to make the final investment decision more forceful.

See also  What Is The Family Budget And How To Create One That Works?

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 will be listed and explained below.

  1. Preparation of proposals. All those people who are involved in the company make investment proposals to expand operations or venture into new businesses that are attractive to the company, whether they are new or in different industries.
  2. Review and analysis of proposals. Generally, a financial firm 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.
  3. Decision making. Once analyzed and with a detailed study of the investment projects in hand, the right people will have to analyze them to make decisions about which projects 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.
  4. Implementation. This is the stage where the project materializes, carrying out, that is, making it a reality to obtain the results as soon as possible. It is the stage where the project is started and produced so that it meets the initial objective.
  5. This is the moment where the results of the project must be observed and measured to compare it with what had been forecast. If there is any variation, it must be corrected to reorient the investment project or in case of concluding that it is not self-sustaining as well as profitable start planning for divestment as well as bankruptcy.
See also  Financial markets

All companies as well as people have limited resources, which is why they have to determine which is the most convenient, which leads us to the term capital rationing since it is a limited resource and must be used in the most rational way possible. , to obtain the highest possible profitability in financial terms as well as in the shortest possible time.

Another three 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 accurate decisions about which is the most appropriate investment project for the company, taking the time of the recovery of 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 having read this small fragment, I consider that we are now more oriented and trained to be able to make a better investment decision, this can not only be applied to business investments but can also be applied to personal and family financial life. It seems that this information is highly recommended use so that our investment decisions are based on both qualitative and quantitative studies. In reality, these types of studies are not exclusive, on the contrary, they 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 investment practice, better results are obtained, in addition to obtaining better results that are closely related to a good decision-making process.

See also  Stock Market and Stock Exchange

Bibliography

  • Gitman, L. (2012). Principles of financial administration. Pearson Publisher. Mexico: 2012.
  • Parkin, M. (2009). Principles of the economy. Pearson Publisher. USA: 2009.
  • Griffin, W. (2008). Business. Editorial Addison Wesley. USA: 2008.