Settings of calculation parameters

In the "Budget-Plan Express" all key indicators of investment efficiency are calculated: PB, DPB, NPV, PI, IRR, ARR, MIRR and other indicators that can be obtained using the data calculated in the program. But not many people know that the results of calculating the indices calculated in different software products, according to the same formulas, can differ substantially.

The question is, what is "positive cash flow" and what is included in the "initial investment" in each case? The universal settings interface offers a wide range of user capabilities, which greatly simplifies the "problem" of choosing the methodology for calculating investment indicators in Budget-Plan Express.

Investment analysis tab

In the "Investment analysis" tab it is necessary to specify:

1. discount rates for each year of the project
2. the cost of capital (the cost of preferred, ordinary shares, reinvested earnings)
3. fill in the table, where you specify (in percent) the dynamics of changes in cash flows after 3 years of the project;
4. adjust the parameters for calculating investment indicators.

1. Calculation of key performance indicators in the Budget Plan Express.
2. Payback period – PB.
3. Discounted payback period – DPB.
4. The net discounted (present) income – NPV.
5. Profitability index – PI.
6. Internal rate of return – IRR, %.
7. Average rate of return – ARR, %.
8. Modified IRR - MIRR, %.
9. Other indicators based on the data calculated in BPE.

1. Annual discount rates

Annual discount rates are set in percentage terms for three years of the project - for the year 1, 2 and 3. The discount rate used in the calculations for subsequent periods coincides with the last specified rate (3 rd year). When the calculation item "Financial analysis" is executed, it is considered, among other things, the weighted average discount rate (%). The weighted average discount rate is also used to calculate, for example, a modified internal rate of return - MIRR (Modified Internal Rate of Return).



2. Cost of capital

The cost of equity capital: preferred, ordinary shares, reinvested earnings is indicated in percentages (%).

In the general case, if the company is a limited liability company, you can enter the same percent indicator in the field "Value of preferred, ordinary shares, reinvested profit".

The percentage (ratio) of borrowed funding sources is calculated automatically and for all periods. Thus, not only interest money is taken into account, but also other payments in the composition of the cost of borrowed financing sources:




R = [ (∑Kn – ∑Zn) / ∑Zn ] х 100%,

r = [ (∑Kn – ∑Zn) / ∑Zn ] = ∑Kn / ∑Zn – 1,

Where:
Kn – all payments for n perio;
Zn – credit money received for n period;
R – the required percentage.

☛ Note that the cost of credit financing (in%) is shown in the calculation results when the item of final calculations "Financial analysis" is executed.



3. The value of the choice of the step of discounting

The choice of the discounting step in projects with a duration of up to 3 years significantly affects the calculation of integrated indicators. This can be compared with the effect of the lens - with the discounting step, each period is "considered" in more detail. That is, in this case, the money will not become cheaper as in the case of the annual step of discounting, but smoothly (monthly). For smaller projects and projects with a payback period of up to 3-5 years, a more "fair" estimate of the value of money can be of significant importance in the calculation. Similarly, if most of the financing falls on the middle of the project (for example, credit financing in construction projects), setting the "year" discounting step can significantly distort the calculation results, as net investment will be discounted along with net proceeds (estimated demand for financing).

However, in reality, like inflationary and other processes related to the market, the reduction in the value of money never occurs smoothly, to a greater extent these are cyclical processes. Given this, we can assume that the quarterly step of discounting, perhaps, most closely reflects the market processes of reducing the cost of money.

At the same time, if the calculation period is up to 3 years, in any case, the step of discounting "year" is quite "rough", distorting the project's risk assessments in the resulting integral indicators.

Considering the above, pay attention, for small projects, with a payback period of up to 3-5 years, and projects where most of the funding falls to the middle of the project (not to the beginning) - it is best to set the discounting step "month" or " quarter".



4. Planning the dynamics of changes in cash flows

As a rule, the vast majority of projects are planned in the horizon up to 3 years (36 months). However, to calculate the project payback and other integral indicators, the calculation period can be extended to 15 years (180 months).

Planning of the dynamics of changes in cash flows ( forecast cash flow) is indicated in percentage, respectively, for each of the three planned flows:

1. Operating cash flow (%);
2. Investment cash flow (%);
3. Financial cash flow (%).

In the calculations, the planning of the dynamics of changes in cash flows is considered - as an increase in the absolute values ​​of cash flows, relative to the corresponding prior period. Accordingly, the values ​​of negative growth should be negative: for example, "-10".

To calculate the forecasted cash flow, an element-wise approach is used that allows for forecasting each component of the cash flow. To determine the value of the series elements (average annual cash flow), an extrapolation method with a simple trend correction is applied.

The detailed period of project planning (by months) is three years (36 months). As a rule, the working stage of almost all medium and most large projects does not exceed three years. For the calculation of subsequent periods (after 3 years of planning), the forecasted trend of changes in the growth of cash flows is used. The maximum period for calculating investment indicators is 15 years.

In the table "Planning the dynamics of changes in cash flows" you need to specify the percentage increase in the absolute values ​​of cash flows. The first three years are calculated and not available for editing.

The forecast coefficient for positive (negative) cash flows is calculated using the formula:

К_n = 1 ± R_n / 100% ≡ 1 ± r

Where:

К_n – predicted ratio in n period,
R_n – percentage specified in n period,
r– interest rate (Rn / 100%).

To determine the forecast value, the positive cash flow is multiplied by the predicted coefficient [1 + r], respectively, the negative flow - by [1 - r].

Note, if the value is "0", this means that the cash flow in this period will be determined at a level equal to the previous period (year).

If it is necessary to zero the cash flow in the current settlement and in subsequent periods, in this case, in the accounting period, you must specify the forecast increase [-100%] - for a positive cash flow, and accordingly [+ 100%] - for the negative, and in In subsequent periods simply indicate "0". See the following table in the section «Cash Flow Forecast».



After three years (after 36 months), the calculations use only free cash flow (FCF) or final cash flow at the end of the period - taking into account the forecast coefficients.

Settings of additional parameters of "cash flow exclusions" allow you to adjust the calculations depending on the definition of goals and risks that are taken into account in the investment analysis. In this case it is a question of a pure cash flow (Net Cash Flow, NCF), on the basis of which, in the future, all integral indicators are calculated. For example, excluding money "cash equivalents" (short-term deposits) literally means that these abstract funds will be "returned" to the cash flow for the calculation of integral indicators. That is, it is assumed that these funds can be returned at any time, and therefore it is necessary to exclude the influence of this factor on the calculations. The same applies to the acquisition of property rights (securities) and other highly liquid assets. However, in the first case, the exclusion of cash equivalents is entirely logical, so it is not just abstract money, but in fact - temporarily transferred to a "different pocket". In the second case, it is an assessment of the influence of abstract funds on integrated indicators, which may be of interest for analysis of project risks.

☛ Notice the "influence of cash equivalents" is excluded from the cash flow by default.

Also, you can exclude interest on loans and dividends from the cash flow. Note, by default, dividends are excluded from the cash flow.

When the button is pressed, the default values ​​are set:

In this case, a "standard" calculation of the project's efficiency is assumed: the total volume of investments in the basic and circulating assets necessary for the project is calculated. See the default settings table .

Depending on the objectives of the planning, the corresponding settings will help to implement different calculation scenarios: the standard calculation of the effectiveness of the project; implementation of the project of the operating enterprise; taking into account the selected sources of financing, etc. In addition, the settings allow you to adjust the net cash flow, depending on the purpose of the analysis.

In the settings for each parameter, you need to "set" or "uncheck" the checkbox - by clicking the mouse, the same thing is "Enter" or any digit ("0-9"):

☑ - "set" or "uncheck" the check box.

The user is invited to specify the content of the calculated cash flows, select the appropriate calculation parameters. Settings can be divided into three conditional parts:

1. You need to clarify the net cash flow, excluding the specified values ​​from the cash flow (see the settings table).

Net cash flow.

The basis for calculating investment performance indicators (integrated indicators) is net cash flow (NCF), which in turn is allocated from the total cash flow - operational, investment and financial. To obtain a net cash flow from the total cash flow, financing (credit financing and equity instruments) is completely eliminated, and all financial payments, as a rule, to repay loans, are "returned". Therefore, the adjustment of the elements of net cash flow directly affects the resulting integral indicators.

Discount step.

When predicting the cash flow, you can choose the calculation step for each year: by month, by quarter or by year (by the total annual values). The imposed scheme must meet the conditions of the specific purpose of the calculations.

The choice of the discounting step in projects with a duration of up to 3 years significantly affects the calculation of integrated indicators. This can be compared with the effect of the lens - with the discounting step, each period is "considered" in more detail. That is, in this case, the money will not become cheaper as in the case of the annual step of discounting, but smoothly (monthly). For smaller projects and projects with a payback period of up to 3-5 years, a more "fair" estimate of the value of money can be of considerable significance in the calculation. Similarly, if most of the financing falls on the middle of the project (for example, credit financing in construction projects), setting the "year" discounting step can significantly distort the calculation results, as net investment will be discounted along with net proceeds (estimated demand for financing).

Calculation start, month index (1-25).

The index of the month (1-25) starts from the first period (1), and ends at the beginning of the third year.

Calculation period.

Calculation period, years (1-15). The basic, detailed calculation is three years (36 months). The maximum period for calculating investment indicators is up to 15 years.

Even if the project is planned in the horizon of 3 years (36 months), for the calculation of recoupment and other integral indicators of this may not be enough, therefore, the calculation period may be extended up to 15 years (180 months).

How to take into account the investments of subsequent years.

This option is only meaningful if initial investments are considered to be "sources of funding" (user defined in settings). If the check box is selected, during all three years of the project the initial investment will be included only sources of funding. Otherwise, the initial investment will funding sources used in year 1 of the project (12 months), then will use the standard calculation needs.

☛ Note that if you select this options "demand Calculation", check "take Account of the investment years" is the default.

The balance at the beginning is assumed to be zero.

If the flag is set to "balance at the beginning is assumed to be zero", in this case, the previous periods of the project before the start of the calculation (set by user) will be ignored and calculation of the integral indicators will start from scratch – from the beginning of the project. Otherwise, the calculation will include the final cash flow for past periods.

☛ Note that by default, the flag "balance at the beginning is assumed to be zero" is disabled.