When To Do Financial Analysis Finance Essay

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Financial appraisal methods are seen to be those methods that are used to assess the feasibility of future projects, which is by assessing the value of its net cash flows that may result from its implementation. That is a financial appraisal method is done to see the investment results that may come up from the view of the organisation that is undertaking such an investment. Generally financial analysis are done in order to determine if it is will be profitable for that organisation which is about to undertake such a project. (Anon, 2010).

1.1 WHEN TO DO FINANCIAL ANALYSIS

According to the African Development Foundation Training Module book (2009) a financial analysis is a standalone report that provides financial information about the financial viability and sustainability of a proposed project. Basically financial analyses are useful if the output of a proposed project could be sold in the market or could be valued at market prices. For privately owned organisations, financial analysis are carried out only on project they are interested in undertaking and also financial analysis on potential investment will be determined by the firm’s balance sheet and the impact it may have on it. For government and international agencies that sell output such as railway, electricity, telecommunication etc. They will undertake financial analysis on each project they are undertaking, to assess the impact of such projected projects on their budgets. For example, telecommunications operators which offer lower tariffs will need to examine the impact of such decisions on their budget. These bodies regularly undertake financial analysis most especially when the financial analysis has some meaning and in most cases when the output of such investment can be sold.

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1.2 WHY DO A FINANCIAL ANALYSIS

One thing is almost certain about a financial (or any other) plan: it will not turn out to be 100% accurate. That’s because nobody can exactly predict the future, regardless of what process, information, tools, or models are used. Therefore you need to analyse your financial data to see whether you are on track, forecast your future expected results, and adapt your plans as a consequence of your analysis (Maquet, 2007)

1.2.1 Valuing project profit and cost in a financial analysis

Financial benefits of any project are seen to be those revenues received from implementing a project, in this case if the project was about producing some goods and services for sale, the revenues received from such yearly sales will be the benefits derived from that project Financial costs can be said to be those financial cost of expenditures suffered by an executing agency or firm as a result of undertaken a project. These are cost sustained from the expenditures made to establish and operate a project. These may include the cost of acquiring a lands,

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