Regardless of the methods used, a financial analysis is as much an art as it is a science and that there are a number of methods that can be used to evaluate a project's viability. Each method has its benefits and which one is used varies on the user. as seen in Box 3 - 9.
Box 3 - 9 In a CBI survey done in 1994 that assessed the financial analytical tools used by British manufacturing companies when evaluating a project, 90% of respondents acknowledged using some sort of quantitative method. However, only 53% preferred a discounted cash flow rate method such as PIRR or NPV, compared to the simple payback method. | |||
| Of those who used quantitative assessments, methodology used: |
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| ■ An accounting rate | 13% |
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| ■ A discounted cash flow rate | 53% |
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| ■ Simple payback | 75% |
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| ■ Return on Capital | 49% |
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| ■ Return on Equity | 12% |
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| ■ Other | 3% |
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| Required return is based on: |
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| ■ Real figures | 35% |
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| ■ Nominal figures | 63% |
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| Sensitivity analysis is employed | 48% |
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