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DOWNLOAD: Net Present Value Investment Appraisal

Ever find yourself in a situation where you have to make an investment decision? Either setting up a new business,  investing in a property or pondering a project within your business? The decision can, sometimes, be a tough one if we don’t have the necessary tools in our toolbox to help us make a good decision.

The Net Present Value calculation is a technique that helps us to make better decisions based on more variables that go beyond other investment appraisal techniques. It is probably one of the most widely used techniques in professional investment appraisal. It is used when you are looking to understand if a project is viable or not. It tells us the profit generated by the project and if whether it exceeds the initial investment, taking into consideration the term in which you need your money back by and any discounts you need to apply to that income such as costs, interest or required rates of return etc.

The NPV is the difference between the cash inflows and cash outflows, discounted by a rate that the future inflows will be subject to, therefore bringing all income to today’s terms or “present value”.

The tool includes the following variables, which you need to know in order complete the calculation:

  • Investment Amount
  • Project Term in Years
  • Discount Rate
  • Cash Outflow/Investment Required
  • Forecast Cash Inflows for Project Term

The way you know if whether a project is viable or not is from the output of the calculation. The NPV will calculate your result in monetary terms, that will either be more than £0 or less than £0. If it is less than £0 over the project term, then you should not progress with the project. Where however the result is a positive figure that is above £0, then the project, in theory, is positive and therefore, cashflow positive and able to pay off liabilities such as costs and return you initial investment.

I’ve created a calculator for some projects I am working on and have made it available for you to download here.

The calculator is limited to a project term of five years, as most forecasting is just guess work after that.

If you would like to level up your NPV game, you can read my blog post here about calculating your discount factor or ‘WACC’ – Weighted Average Cost of Capital.

Hope it’s useful. If you would like the calculator tailored, please email me and I’ll be happy to help.

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Blog Videos

Leasing Might be a Problem

An interesting video that talks about investing the monthly payments that might be spent on leasing a car. Essentially outlining the idea behind compound interest. 

Only if they taught this stuff in school.

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Blog Downloads

DOWNLOAD: My Approach to Investing in Shares is Better than Yours

I never knew what shares to invest in once it comes time for me to invest. I found myself stumbling from site to site and asking people I consider knowledgeable for their recommendations. The problem with this is that, I am making my investment decisions based on other peoples investment objectives. So I decided that I needed to come up with a way that allows me to buy shares based on my own, personal objectives.

They are:

  • Must be strong companies
  • Have a good dividend returns
  • Have low levels of risk (volatility) for a certain percentage of portfolio
  • Good potential for longer term growth (buy and hold)
  • Value for money

With these objectives, I put a calculator together that helps me decide on which shares to buy, based on my objectives. The above objectives are what the calculator will help me to achieve; there are others like diversification of risk and industry and others, but I’ll talk about them in another post.

Process: Once I put the calculator together, I input share prices with associated dividends and betas and sorted in to ‘Descending’ order. The shares at the top of the list offered most value, so I bought those shares. Simple right?

My calculator appropriately named, ‘Which Share To Buy Calculator’ can be downloaded here.

Aside from the calculator, please do your own research; I cannot be held responsible for your buying decisions!

Further instructions can be found in the calculator.