The comparative analysis of assessment methods and cost efficiency of investments

The problem of reliable cost efficiency analysis of investments is highly relevant both for an enterprise in terms of efficiency of the investment management, and for potential investors in terms of investment planning. There are two kinds of methods of calculation and analysis of the cost-effectiveness of investments: static and dynamic. In practice the static methods are used more often: although they provide only a rough estimation of the investment options, they are relatively simple, can be used for preliminary assessment in the absence of reliable data on income and cost of the investment project, and in addition, can detect inefficient investments. There are following static methods: calculation and comparison of costs, benefits, profitability and payback period. According to each of these methods the criteria of investment efficiency are defined. This is the minimum of general cost (current and capital), the maximum rate of profitability (measured by the rate of return on investment), and the minimum payback period (the time it takes to return the investment capital). For a more thorough analysis of the investment project the dynamic methods are applied. They are based on the calculation of general showings of the efficiency for the entire duration of the project, taking into account the factor of timing of cash inflows and outflows associated with the project. The main indicator used in each dynamic method is the net cash flow, which is defined as the difference between cash inflows and outflows over a certain period of time, called the prediction step.