Investing is passive income. Is it necessary to control the situation or is it enough just to assess the possible risks and profits? In this article, we will analyze how and why to conduct investment analysis, as well as what types it is.
What is an investment analysis?
The purpose of any investment is to obtain financial benefits. If you invest in a project without analysis, it is comparable to gambling. Investment analysis allows you to predict the feasibility of long-term and short-term investments.
Of course, the result obtained will be just a simulation, and in life, some situations cannot be calculated within the framework of such an analysis. However, a well-conducted investment analysis can minimize risks and get a real idea of the feasibility of investing before making a final decision.
Investment analysis is a complex of several methods for evaluating and predicting the feasibility and effectiveness of investing. Investment analysis gives an understanding of how right you are in your decision and allows you to draw correct and reasonable conclusions. In addition, such a procedure contributes to solving existing investment problems and finding alternative options.
Thus, investing is a rather complicated and serious way of earning, which requires utmost care and a responsible attitude. A competent investor analyzes investments before, during, and after the transaction, which adds to his experience and professionalism.
Software products for the analysis of investment projects
When deciding to invest in a particular project, it is necessary to evaluate its economic efficiency. For this, automation tools have been developed – investment analysis programs that simulate the development of the project. Among the best options in this field there are:
- Project Expert;
- COMFAR;
- Personal Capital;
- Mint;
- Investment Account Manager.
Such software solutions allow:
- develop a detailed financial plan and assess the need for funds in the future;
- to define the scheme of financing of the investment project;
- evaluate the possibility and effectiveness of attracting funds from various sources of financing;
- develop a plan for the production and development of the enterprise;
- determine an effective marketing strategy and rational use of material, labor, and financial resources;
- calculate and analyze various scenarios for the development of the project, varying the values of factors that can affect the financial results.
Virtual data room – a good software alternative for investment analysis
Nowadays, about two dozen programs can be attributed to this class of software, but, given the specifics of the business and the mentality of domestic entrepreneurs, you can limit yourself to 5-6 products. Besides, virtual dataroom (VDR) can also be used as a tool for investment analysis. It is a multifunctional digital platform that allows you to track the actual state of the project and the deviation of the real financial indicators of the enterprise from the planned ones.
Data room software is used by private equity companies for efficient data management, investment strategy, reporting, and analytics. VDR automates deal pipeline, data enrichment, knowledge sharing, and investment opportunity assessment.
VDR allows you to calculate and analyze in dynamics the following groups of indicators of the effectiveness of investment projects:
- Indicators of commercial (financial) efficiency, taking into account the financial consequences of the project implementation for its direct participants;
- Budget efficiency indicators reflecting the consequences of the implementation of the investment project;
- Economic efficiency indicators that reflect the costs and results of the project.