Financial Analysis of the Stadium Construction Project

Financial Analysis of the Stadium Construction Project

Willie Collins AMU

Introduction

• The financial review deals mainly with the earning factors of a project.

• This presentation recommends the installation of a sports arena to accommodate the team.

• Financial Analysis is troubling of industrial or private viability from the firm’s economic perspective.

• This document aims to discuss the financial analysis of the project.

Outline

 The outline of this presentation is as follows:

 Inflation and Project Evaluation

 Probability

 The economic life of a project

 Debt position • Risk, Uncertainty

Inflation and Project Evaluation

• Given that an investment project is a plan to be introduced in the future, it is important to consider the issue of what rates will be or to fix it at least.

• Indeed, inflation influences the cost of capital, i.e., the discount rate, not just potential cash flows.

Cont..

• When the rate of inflation is zero, the price, and the interest rate, which represent the money preference (for financial analysis), have little to do with the individual price.

• This equation could be written down as below to show the relation between the real and the nominal interest rates of inflation climate (1 + actual rate) (1 + inflation rate) = (1 + nominal rate).

Profitability

• “The key aim of a firm is to profit,”. • The profitability of the Company will be measured with

the gross margin ratio (MMR) and income margin ratio. • The profit margin ratio reflects the amount of net profit

per sales dollar.

The Operating Margin Ratio

• The operating Margin is an indicator of “the proportion of incomes of a business remaining after payment of variable production costs, such as wage, raw materials, etc.

• This measurement is expressed in proportion.

The rate of Return on Assets (ROA)

• The RRR (ROA) ratio is a ratio that can determine a company’s ability to use the capital for revenue generation (i.e., assets).

• The ROE is “net sales as a proportion of equity returned by the shareholder.

• This ratio is shown as a% which demonstrates the income produced by the investors’ money.

• The asset turnover ratio still exists. • The asset sales ratio is the rate at which a business may

sell its assets.

The economic life of the project

• A significant feature of using the discounted cash flow method is the economic life of a project.

• An individual investor like this in agriculture, e.g., a processing plant, the technological life of a large investment item is a comfortable basis for deciding the national economy.

Cont..

• The public effect of a major investment object, particularly in an infrastructure plant, is technological development smaller than its technical life.

• Economic life, on the other hand, maybe called the term that the project no longer pays, and this involves fixes and substitutes .

Debt-to-equity ratio • The debt-to-equity ratio applies in comparison to the degree to which

the share price can satisfy their debt to their creditors, the amount of capital and debt that a business requires to pay their properties.

• A high debt-to-equity ratio indicates the assertiveness of a business to fund its debt growth.

• Conversely, if the debt-to-equity ratio is less than 1.0, the business funds more equity assets than debt.

• If a corporation has a high debt ratio, the corporation has a higher financial burden and is considered to be able to leverage

Uncertainty and Sensitivity Analysis

• Any technological, security, and political knowledge is used for a project.

• We forecast approximate speeds, prices, etc., and may entail some risk and vulnerability in these forecasts and predictions.

• In cases where empirical odds can characterize potential consequences, the chance is named, and the range of likelihood of different outcomes is not regarded as insecurity.

Cont…

• For example, differences in manufacturing primary raw materials may be shown as a risk study for a food treatment project; a study with unknown conditions is the possibility that technological developments will impact the economic life of the project.

• There are reasonably advanced approaches to managing uncertainties and uncertainty in economic and financial research.

• On the other hand, some basic methods are used to demonstrate how a project reacts to changing conditions

Cont…

• The approach to take into account expected developments is called a vulnerability study. For example: • i. In the current value estimation, apply a risk bonus to the

discount rate, • ii. Growing certain prices, reducing by a certain amount some

unknown advantages, • iii. The way comparative study should be considered using a

project life rather than the structured one.

References

• Nobility, Mohammed, S. R., & Jasim, A. J. (2017). Study and analysis of the delay problems in construction projects. Int J Sci Res. https://doi. org/10.21275/ART20173791.