Corporate finance and investment projects are two closely related topics in the business plan as concern aspects of decision making that affect the business as a whole. In fact, if the finance covers all of the decisions that must be made and the actions that must be made to find and use funds, investment decisions is a task that must be done even upstream of the financial process.When the entrepreneur must make investments, usually found in front of many alternatives, not just to one, and each of these alternatives has different impact on operations. From looking financial, ending with the organization. “What do I do? What do I do? It ‘better to do this, or do there? “. These are questions that often haunt the entrepreneur and also take away the peace of mind needed to make the right decision.

The choice of an investment rather than another, in fact, also involves the calculation of different financial flows which generates (and absorbs) and the cost differential to which from place.
Even the trivial choice of a computer has the financial and organizational implications because not all computers have the same price (can cost anywhere from 300 to a few thousand euro), and not all people are able to use the many features that have some computer . So before there is a financial aspect to consider (finding the money to buy the PC), and then the organization, that is, finding a resource that knows how to use.

corporate-finance

Imagine what happens when certain decisions regarding plant, machinery and more complex things. The choice of investment projects, therefore, should go hand in hand with the financial evaluation of investment and with the choices on the sources of financing most appropriate. Recalling that the capital must (or should) be financed with short-term funding, while the fixed assets should be financed with long-term financing.

In this regard it should be noted that when a contractor (and also an aspiring entrepreneur) must make an investment, the choice is guided by the two source parameters that are strictly business: the calculation of profit (incremental) generated by the project, and the risk connected. This is because, for a given certain other conditions are always preferred investment projects that provide a higher profit margin, as long as they remain within certain risk calculations. Or, are preferred projects that guarantee a profit or a certain rate of return (perhaps predetermined), but with a lower risk factor.

Corporate finance and investment projects: how to choose?

When the employer must make an investment, often are faced with a situation in which assessed (or is considering) alternatives to complete his project. As was mentioned earlier, each option involves various assessments, which must be done in terms of risk-return profile. As is evident, the figure shows that to perform a certain investment, there are three possible alternatives : the project A, the project B, and the project C. Each of the three projects has characteristics that make it different from the other two. In fact, if project A is the one that requires a higher initial outlay of money (financial aspect, 28,000 euro, increased risk), it is also true that it is the one that guarantees the flow of “return” more, over time. In fact, the flows that are generated in the first year of € 19,000, € 10,000 in the second year and 6,000 in the third year, higher than the yields of the other two projects. It ‘a situation with a high initial risk (compared to two other projects), but with high performance in the future.

In contrast, the alternative B is the one that requires less initial outlays of money (only 10,000 euro), but it is also one that “guarantees” lower returns in terms of future cash flows. So: low initial risk due to low financial outlays , but also low yields. The project C is the one that lies somewhere between the two, with average initial outlays, as well as average rates of return. It ‘clear that then, for making the “right” should be evaluated a number of other things, from the organizational point of view. But an initial assessment based on the calculation of risk-reward can already help a lot to tip the scales towards a project rather than another.

Conclusions

These we have mentioned today, are some of the most critical assessments to be carried out in the preparation of the business plan: it is in this document that the entrepreneur puts pen to paper all of his ideas, he has to reckon with the financial aspects of his business idea, with aspects organizational with everything else! And the business plan it also helps to deal with its greater or lesser risk appetite. In fact, it is not only sufficient “have money” to implement an economic initiative: it is also necessary to have the right attitude and look over; do the math done well and then decide!