Assessment of the investment attractiveness of an enterprise: basic concepts, methods, principles, ways to improve

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Production investments are the backbone of any enterprise. Large capital investments will make it possible to create or upgrade the existing material and technical base, replace physically or obsolete fixed assets, increase the volume of activities, master new types of products, expand sales markets, etc. But how to ensure that potential investors decide to invest their money in the development of a particular company? To do this, they need to show the stability of the organization, its reliability, competitiveness and profitability. For this purpose, indicators of the investment attractiveness of the enterprise are calculated.

Basic concept

What is meant by investment attractiveness? This concept is a set of various indicators of the financial and economic plan. With their help, the level of positioning of the company in the market is determined, givenassessment of the external environment and the potential of the final result is predicted.

In general, the attractiveness of investment projects is influenced by a large number of factors. In addition to qualitative and quantitative values (economic, political, legal, social /) there is also the internal positioning of the enterprise in the market environment, as well as a qualitative assessment of its financial and technical potential. All this model together allows you to determine the final result.

The investment attractiveness of an enterprise cannot be separated from the development of the industry in which it operates. That is why it is not possible to give an exact definition of this concept. After all, each sector of the national economy has its own set of properties, which make it possible to evaluate the investment attractiveness of an enterprise.

What is it for? With the help of the assessment, the investor is able to assess the profitability of his investments in the project. According to experts, those who are going to provide capital for the development of the company should not forget that its activities are tied to industries and regions of the country. And the conditions that develop in production largely depend on this. That is why the attractiveness of investments is determined at several levels at once. This is:

• micro-level - the assessment is calculated based on the indicators of a particular enterprise;
• meso-level - the entire region in which the company is located is considered;
• macro level -the issue is being studied at the country level.

Attractiveness of the enterprise for investment

This concept represents a certain set of a wide variety of characteristics that show how profitable it is for a person with capital to invest it in the development of a company.

If we consider briefly the indicators for assessing the investment attractiveness of an enterprise, then the first thing to pay attention to is the factor indicating the presence of a stable income that the company receives over a significant period of time. Today, many firms seek to raise additional capital. Not surprisingly, there is a rather tough competition in this area. To attract the necessary funds, it will be necessary to develop a project that will allow a potential investor to predict his income after the conclusion of the transaction.

Development of a report that allows assessing the investment attractiveness of an enterprise is carried out with the inclusion of various financial indicators. Such a document allows you to see all the nuances of the company.

To assess the investment attractiveness of an enterprise according to the balance sheet compiled by the accounting department, the following are calculated:

1. Liquidity. The value of this indicator indicates how quickly the assets of the enterprise (if necessary) can be turned into cash.
2. Property. This indicator reflects the share of non-current and current assets in the total assets of the company.
3. Business activity. CalculusThis indicator will characterize those financial processes of the enterprise, on which their profit primarily depends.
4. Financial addiction. Its definition will show how much the company needs external financial sources and whether it is able to carry out its activities without obtaining additional funds.
5. Overall profitability. It is a reflection of the organization's effectiveness in using its available financial plan opportunities.

Among the indicators of the investment attractiveness of the enterprise is also:

• Resource availability.
• Headcount.
• Profitability of finished products.
• The level of production capacity utilization.
• Depreciation of fixed assets.
• Availability of production and fixed assets, etc.

The main criterion for making a decision based on an assessment of the investment attractiveness of an enterprise is the level of project risk, as well as its consequences. The calculation of such an indicator is made after clarifying the category of possible consequences. In this case, all existing risks can be expressed as follows:

• decrease in income;
• changing market conditions;
• growing competition;
• changes in pricing policy;
• loss of liquidity;
• default, etc.

Project analysis

Investment business has significant differences from the standard business model. It is based on the concept of nestedcapital without direct participation in the operational work of the company. In this regard, there is an urgent need for a thorough analysis of the investment attractiveness of the enterprise. This will allow you to make the right decision using the available data and applying analytical skills.

In general, the analysis of the investment attractiveness of an enterprise involves work in the following areas:

1. Studying the basic conditions of the firm. At the same time, political and macroeconomic factors are considered.
2. Study of existing market conditions in the company's field of activity.
3. Review of the technical aspects of the enterprise. In this direction, the energy availability and technological level of the company, its provision with resources and logistics are subject to analysis.
4. The study of indicators characterizing the financial activities of the company. The data obtained will help to understand whether the company is able to generate positive financial flows.
5. Analysis of the organizational capabilities available to the investment object. In this case, the quality of human resources is considered, as well as the ability of managers to make adequate and timely decisions.
6. Consideration of the information component of the business. In this case, it is supposed to study whether the company has intellectual property, as well as its integration into the interstate information space.
7. Studying asset security. It is important for an investor to understand how a companyable to withstand adverse social, financial and economic factors.

Identification of the assessment of the investment attractiveness of an operating enterprise includes the use of one or more methods, on the basis of which an analysis is carried out, allowing a decision to be made on the allocation of capital.

Methods of data collection

Approaches to assessing the investment attractiveness of an enterprise can be very different. This is primarily due to the fact that today the content of this category has not yet been fully explored and a unified methodology for analyzing the risks of investing capital in a company has not been developed, on the basis of which it was possible to give an unambiguous description of the current state of affairs.

Techniques developed by specialists use a variety of indicators. Moreover, each of them interprets the result in its own way.

Let's consider the methods used in practice for assessing the investment attractiveness of an enterprise.

Regulatory approach. Important Features

Analysis and assessment of the investment attractiveness of an enterprise are very often made on the basis of calculations performed in accordance with documents adopted at the legislative level. Thus, methodological recommendations specially created for this area have been widely used. They were adopted in accordance with the order of the FSFR of Russia dated January 23, 2001. It is used to assess the financial condition and investment attractiveness of an enterprise Government Decree datedJune 25, 2003 This document approved the rules for conducting financial analysis by an arbitration manager.

In the above sources, you can find the main indicators that serve to assess the financial and investment attractiveness of the enterprise. Among them: business activity and liquidity, efficiency in the use of working capital, etc.

However, these indicators are able to characterize the investment attractiveness of the company only within the narrow framework of the traditional approach to its assessment. In addition, the values recommended by these regulatory documents are applied during the bankruptcy procedure. As such, they are quite difficult to use directly to determine a company's attractiveness to capital holders.

Discounted Cash Flows

This method of assessing the investment attractiveness of an enterprise is based on determining the value of the company. To do this, a cash flow forecast is made that will indicate the profitability of its future activities.

The period for calculating indicators when using this method is taken within 3-5 years. In doing so, several cash flow forecasts are made. They are calculated up to a certain point and in the post-forecast period. Both that, and other indicator are resulted on date of carrying out of an estimation to the current cost of the company. All this is done while discounting them at the rate that reflects the risk associated with the receipt of the financial flow. As a result, the current value of the company will be formed. This indicator will allowfinal conclusion about the attractiveness of the project for capital investment.

When using this method, research should begin with an analysis of revenue, other expenses and income, as well as the net profit of the enterprise. The obtained values will indicate the growth dynamics of these absolute indicators, which are used in the preparation of financial statements. Next, a medium-term forecast is built. In this case, the assessment of the investment attractiveness of an operating enterprise includes an assumption about their growth dynamics. Thereafter, the forecast and actual cash flows are discounted at a rate that reflects the current situation. In other words, they lead to the current value of the company. All this allows the investor to find out its real value and determine the potential.

However, according to some experts, the method of determining discounted financial flows is not entirely correct. After all, when it is applied, the indicators of the forecast period are calculated with a mechanical transfer of the existing trend in the dynamics of the enterprise. The assumptions made are purely subjective. That is why there is no guarantee that there will be no errors in the calculations.

Analysis of factors of both internal and external influences

When applying this methodology, indicators for assessing the investment attractiveness of an enterprise are identified at several interconnected stages. The successive steps of such work include:

1. Selectthe most important factors (internal and external) to attract the attention of investors. This work is done using the Delphi method.
2. Building a regression multifactorial model. As a result, it becomes clear the impact that the selected factors can have on the investment attractiveness of the enterprise.
3. Analysis of the received data. This takes into account the identified factors and develops specific recommendations.

The described method is quite effective in assessing the investment attractiveness of a company. After all, its application provides for an integrated approach to the study of the activities of the enterprise and taking into account all available factors of an internal and external nature. However, this method cannot be called ideal. Indeed, during the passage of the first and third stages of its examination is carried out on the basis of questionnaires and surveys. This makes the final result dependent on subjective assessments, which leads to a decrease in its accuracy.

Seven-factor model

When applying this technique, the main indicator for determining the attractiveness of an enterprise for investors is such as return on assets. The definition of such a criterion is due to the fact that the company's activities largely depend on the state of the resources that it has, on their composition and structure, quality and quantity, interchangeability and complementarity, as well as on the conditions that ensure their most efficient use.

In the seven-factor model, return on assets is compared with the samean indicator calculated from sales, as well as with the cyclicity of current assets, the current liquidity ratio, short-term liabilities and receivables, the share of accounts payable in the amount of borrowed capital and the ratio of the organization's assets to the enterprise's debts on loans.

Analysis of these indicators allows you to identify the impact of these factors on the final result. An investor, evaluating the return on assets, must understand that the higher it is, the more efficiently the given company works. And here an integral assessment of the investment attractiveness of the enterprise is made. To do this, the indices of change of all identified factors are multiplied. The resulting value determines the level of attractiveness of the object for investment.

When using the seven-factor model, it is possible to mathematically accurately determine the indicator that will become the main criterion for making a particular decision. However, he will take into account only internal data indicating the activities of the enterprise, and examines only the financial side of the issue.

Integral assessment using internal indicators

When applying this technique, factors grouped into five blocks are used. All of them are internal indicators of the company's performance, which directly affect its attractiveness for investors. Among them:

• the efficiency with which fixed assets and current (tangible assets) are used;
• state of finances;
• use of human resources;
• workin the investment direction;
• business efficiency.

Considering the indicators of each of these blocks, a potential investor makes calculations that come down to obtaining an integral indicator that can indicate the attractiveness of an enterprise for investing capital. Such calculations consist of two stages. The first of them reveals the standard and reference values of all available quantities, as well as their weight in the complex indicator. After that, taking into account all previous years, the potential functions are calculated.

The role of a complex indicator is played by the calculation of rating estimates of the investment attractiveness of enterprises. This concept implies an indication of the positions of the analyzed object according to the existing scale of indicators. The rating score is a comparison of a system of data indicating the effectiveness of the financial and economic work of a company with a conditionally accepted standard enterprise, the results of which are considered the best in the studied market area.

At the end of the stage, the data obtained are brought together, and a comprehensive assessment is made for each of the blocks. The result of the second stage is the mathematical calculation of the integral assessment of the investment attractiveness of the enterprise.

This technique has objectivity. And this is its clear advantage. In addition, reducing the calculations to the final indicator makes it possible to significantly simplify the interpretation of the results. In addition, scoring givesopportunity to compare enterprises with different forms of ownership.

Among the negative aspects, experts highlight the use of only internal performance indicators of the company in isolation from external conditions when applying the methodology.

Comprehensive assessment

This method lies in the analysis of many factors of the company's activities, which are its internal and external components. When it is applied, the final result is reduced to one integral indicator, combining three sections, namely general, special, and control. Consider the information that each of them contains.

The general section contains an assessment of the company's position on the market, its business reputation, the dependence of its activities on large buyers and suppliers, the level of management and the opinion of shareholders. It also analyzes the company's performance in the future. The scoring of the investment attractiveness of the enterprise is given at the first 5 stages of such work. The last step is to study the dynamics of the indicators of the financial and economic activity of the object in which the money is supposed to be invested.

A special section discusses the stages of enterprise assessment that characterize it:

• overall efficiency;
• proportionality of economic growth;
• operational, financial, innovation and investment activity;
• profit quality.

At the first stage of developing a special section, a dynamic matrix model is built. Herthe elements are indices of those indicators that are the main ones when considering the company's activities. All of them are grouped into three groups. Among them:

• initial, indicating the amount of resources used;
• intermediate, which can be used to characterize the production process;
• final, determining the quality of the result of the company's work.

The second stage of developing a special section involves conducting a situational analysis of the proportionality of the pace that the growth of the company's key performance indicators has.

At the third stage, the coefficients of the innovation-investment, financial and operational activity of the enterprise are calculated.

The fourth stage consists in assessing the quality of profit based on solvency and profitability indicators.

After compiling the first two sections of this methodology, final marks are given. In the future, they are summed up.

In the control section of the methodology, the final coefficient is calculated. It is defined as the sum of the products of the points given, as well as the weighting coefficients. Based on the result, the final conclusion is made.

This method has certain advantages over other methods for assessing the investment attractiveness of an enterprise. They are concluded in an integrated approach to the consideration of the issue, in covering a large number of coefficients and indicators, as well as in reducing the results of the work to one integral value.

The disadvantage of the methodology is manifested inexisting effect of subjectivism. It arises when expert assessments are made by specialists. Nevertheless, such a disadvantage is compensated by the inclusion of a significant number of relative and absolute economic indicators in the analyzed area.

Raising Capital

How to get your business invested? To do this, it will be necessary to bring the performance of the company to a level that will attract the attention of capital.

After the assessment, the ways to increase the investment attractiveness of the enterprise and the growth of its most important indicators can be carried out as follows:

1. Increasing the stable performance of the company in the manufacturing sector. The key to success in this case will be the effective use of the resources that the enterprise has. For example, with five machines out of ten working in the shop, the first will quickly wear out physically, and the second will rust over time. But at the same time, the products manufactured by the enterprise should not be stale in the warehouse. It must be immediately sent for implementation. That is why the company's work in this direction must be balanced very clearly.
2. Ensuring commercial success. Only well-performing firms can qualify for first place in the popularity rankings and receive additional capital.
3. Maintaining financial stability. In order to receive additional funds for development, it will be necessary to have performance indicators that are at a sufficient level. In this case, how canachieve the desired grade increase? Ways to increase the investment attractiveness of the enterprise and improve its work are to reduce the amount of existing debts, as well as to minimize the cost of carrying out activities.
4. Properly organizing the work of the company. To increase the attractiveness of the enterprise for investors, it will be necessary to consider the feasibility of having certain departments, as well as some units of the management structure. By improving management, it is possible to achieve rational use of working time by employees, and, consequently, the attractiveness of the company for investing additional financial resources.
5. Developing employee incentive systems. The success of the company largely depends on the mood with which employees perform their duties. With pleasure, they will work with the existing incentive system and the opportunity to grow up the career ladder, knowing that they receive a decent reward.
6. Introducing innovative technologies. Attractive to investors are those enterprises that offer the market high-quality goods manufactured using modern technologies. In order to become one of them, you will need to maintain the equipment at the highest level, as well as hire only highly qualified specialists.