Financial Analysis and Project Participants

Financial analysis provides a practical means of assessing the profitability of investment and their financial impact on potential investors. It forms an integral part of project design as technical, economic, financial, commercial, social and institutional aspects are all interrelated. The main goals of the financial analysis are:

a)to determine the financial viability of a project or an enterprise;

b) to assess the adequacy of a financial plan for a new project or a continuing business;

c) to advise on methods of improving the viability of a project or enterprise including the appropriateness of tariffs, prices and conditions which are required to support a loan;

d) to plan and control project/enterprise operations.

Financial Viability includes financial profitability and the viability of a new project or enterprise. For new project the main objective of the analysis is to demonstrate that the financial cash flows expected to be generated are attractive to the prospective investors. The analysis can be based on the internal rate of return (IRR) and the net present value (NPV). In drawing up the Financing Plan, consideration will be given to the various types of capital and to the most effective structure, both of which would be coordinated to satisfy the financial requirements of the business. Financial Planning and Control include: analyzing historical performance, assessing the future environment in which the firm will be operating, developing long-term objectives, formulating the strategy to achieve these objectives, translating the strategy into operating plans for next 3 – 5 years, motivating employees to achieve plans, comparison actual with planned performance. Project control implies that the selected projects are effectively implemented. During the course of implementation, the management is likely to be interested in four related questions:

- Is the project ‘on time’ and will it be completed as planned?

- Will the result of the project be as previously projected?

- Is the cost going to be as estimated?

- Is there a need for an adjustment in plans?

There is no doubt in the importance and necessity of financial statements which are used in project cycle. Their fundamental objective is to communicate measurements of, and information about, the resources and performance of the reporting entity to those who have reasonable rights to such information. Company accounts are used for a variety of purposes by different groups of users which may be called the participants of the project. The most important of them are:

1. The management. The amount of the necessary information varies according to the level of management concerned. Top management and Boards may use more accounts than other levels in order to monitor the progress of the project activities and to make the decisions which ensure the most efficient use of company resources.

2. The investor group. Existing and potential stockholders use accounting records to ascertain the security of their investment and the divided cover.

3. The loan creditor group. Creditors and lenders are concerned with the security of their loan and the project ability to meet the agreed repayments as they fall due.

4. The employee group. They are interested in: (a) the future of the company, the prospects for expansion and for continuing employment; (b) getting a fair and reasonable share of the company gains.

5. The analyst-adviser group. They need particularly detailed information often relating to an extended period to give the best advice to their customers.

6. The business contact group. Suppliers selling on credit require information similar to those required by the creditors to assess the creditworthiness of the company. Customers use financial information to judge the ability of the company to fulfill its commitments.

7. The government. The government uses accounting information in several ways: a) as a customer (to check on excessive profiteering); b) as a tax collector (to assess tax liability); c) as a regulatory body (to regulate the relationship of business with each other, for example through price control); d) as a central statistical agency (to collect and publish statistical data).

From the above we can say that all the participants of the project need the information on a company’s net asset values, profitability and liquidity position.

Exercise 7. Read the text once again and find key words in every passage.

Exercise 8. Read every passage once again and express its contents in one sentence.

Exercise 9. Translate the sentences into English. Review grammar in §3, §5 of grammar supplementary:

1. Человек, определяющий финансовую жизнеспособность фирмы, это финансовый менеджер.

2. Увидев план проекта, мы оценили его соответствие требованиям.

3. На месте инвесторов, я бы убедился в безопасности вложенного капитала.

4. Если бы у него было достаточно времени, он бы проконтролировал реализацию проекта лично.

5. Если бы Вы вчера присутствовали на собрании, то оценили бы перспективы расширения.

6. Будете ли вы публиковать новые статистические данные, если результаты изменятся?

7. На твоем месте, я бы проследил за реализацией проекта.

8. Что бы вы сделали, если бы компания оказалась не кредитоспособной?

9. Если бы в прошлом году правительство приняло новый закон, отношения между предприятиями были бы урегулированы.

10. Как только он придет, мы проанализируем, соответствует ли данный инвестиционный проект финансовым требованиям.

Exercise 10. Read the text once again and make the presentation: “Financial information and analysis play the great role in the investment project design…”

Test 9

1. I think I’ll hire this bookkeeper, as he is good ________accounting.

A at

B in

C of

2. When I saw my immediate superior I was sure I ______________ him before.

A met

B have met

C had met

3. The accountant doesn’t work hard, _______?

A...., is he?

B...., does he?

C...., doesn’t he?

4. The letter __________ by the secretary tomorrow.

A will be post

B will be posting

C will be posted

5. Have you ever been ______ London?

A to

B in

C at