Profitability analysis venture profit

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When dealing with ordinary industrial operations, profits cannot be predicted with extreme accuracy. In any type of investment a certain amount of risk is always involved, and a chemical venture is an investment. At least moderate risks are involved in most industrial ventures. In general, a 20% return before income taxes would be a minimum acceptable return for such an investment proposition. Therefore the plant proposed here looks promising, and further economic analysis is strongly suggested. 

The expression plant design immediately connotes industrial applications consequently, the dollar sign must always be kept in mind when carrying out the design of a plant. The theoretical and practical aspects are important, of course but, in the final analysis, the answer to the question Will we realize a profit from this venture almost always determines the true value of the design. The chemical engineer, therefore, should consider plant design and applied economics as one combined subject. 

Profitability- Analysis A document supplying information on the profit potential of the final plant. Several standard methods such as return on investment, venture profit, payback period, and annualized cost are used to calculate the expected profitability [957]. 

It is impractical to build up a total market demand curve for a product by estimating each individual consumer demand and then adding these demands. However, a qualitative understanding of utility and elasticities combined with statistical analysis of past market behavior, projected consumer incomes, and sales of major items does permit total demand for a particular product to be estimated. The ability to arrive at such an estimate is a crucial step in projecting the profitability of a business venture in the CPI. Two approaches may be used to derive a total market demand curve. 

Economic analysis in a broad sense is the determination of the relationship of income and expenses to the material welfare of the company. In previous sections the development of cost or expense data has been demonstrated. In its simplest form, the problem is now to establish what the income from sales will be, subtract the total product cost, and obtain a gross income. By subtracting income taxes, new earnings are obtained which must be linked to total capital investment to determine the attractiveness of the venture. These conclusions must be conveyed to management in one or more ways so that a sound decision can be rendered. One must recognize the fact that the project will have to compete with others for the investment money available and, in the final analysis, profitability will carry the mo.st weight in the decision. 

Income from Salable Products. This covers the sale of the by-products as well as the principal productfs), which is primarily monitored by the market and sales group. The interrelationships among selling price, market demand and supply, production capacity, and investment return require careful economic analysis. In many cases, particularly new ventures, this can only be detei mined by a profitability analysis, e.g.,... 

In this chapter, we will see how to apply the techniques of economic analysis developed in Chapter 9. These tedmiques will be used to assess the profitability of projects involving both capital e q)enditures and yearly operating costs. We look at a variety of projects ranging from large multimillion-dollar ventures to much smaller process improvement projects. Several criteria for profitability will be discussed and applied to die evaluation of process and equipment alternatives. We start with the profitability criteria for new large projects. 

The basic aim of financial measnres and profitability analysis is to provide some yardsticks for the attractiveness of a venture or a project, where the expected benefits (revenues) must exceed the total production costs. 

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