Business values investment analysis

The values of raw materials and products can be found in trade journals such as Chemical Marketing Reporter (published by Schnell Publishing Company), European Chemical News and Asian Chemical News (published by Reed Business Information). However, the values reported in such sources will be subject to short-term fluctuations, and long-term forecasts will be required for investment analysis. 

Pre-project work starts with an idea or concept which the client has decided to develop. The concept and design of the final process plant progresses in cycles of increasing definition. Initially a study is made, in which the concept is technically developed, optimized, and analysed as a business proposition the analysis includes considerations of technical and commercial risk, capital and operational cost, product value, and return on investment. A report is prepared if the conclusions are acceptable to the client, he may authorize the implementation of the project. Alternatively, he may authorize more funds for further conceptual development, or, of course, abandon the concept. Authorization of the implementation of the project invariably implies the expectation of a plant which will perform within specified limits, and be built in accordance with certain standards, within a promised budget and schedule. 

One very simple analysis for assessing future expectations is to calculate the split of a company s share price into the part which will be derived from the business as it is at present and the part which will come from organic growth. The value of the business as is can be interpreted as the (hypothetical) value of the business if all additional investments were stopped and all earnings were distributed to the owners. The - usually positive - difference between this value and the company s share price can be interpreted as the value of the company s growth options (Pig. 2.5). 

The measurements of net profit, cash flow, and ROI tell the manager whether a firm is making money and what its relative performance is. Obviously when managers need to make decisions in the course of daily business, they will try to increase profit, cash flow, and ROI. But, it is not always immediately obvious in many decisions which alternative will maximize this return. The break-even analysis and present value analysis do provide information about investments, but they do not provide insight into decisions about how to schedule the equipment and which orders to accept given certain capacity constraints. 

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