Question by svpasamba: How to have a good Feasibility Study analysis and interpretation without the use of financial ratios?
Do you think you would be able to do a reasonably good job of Feasibility Study analysis and interpretation without the use of financial ratios? Justify your answer. In the absence of the postdating set of ratios, what other financial and decimal techniques would you utilise to still come up with an equally qualified Feasibility Study evaluation?a.) liquidiy ratios b.) stability ratios c.) profitability ratios d.) turnover ratios e.)growth ratios
Answer by Willie Boy
Your question is two-pronged:First, your’e asking if a FS is okey without the financial ratios and, next, what other quantitative techniques can be used to come up with equally competent FS.This is artful because a full-blown feasibility study boils down into the question of profitability and this may not be determinate if the financial aspect does not utilise 2 or 3 calculating ratios you adverted.Anyway, I believe that some project feasibility studies, especially those destined for government-funded programs are not necessarily concerned on financial (accounting) ratios as it pay attention on worldly (investment) ratios instead. The evaluation of project studies much as these draws strength on the fact that not all results (benefits) of projects can be quantified (delegated with monetary value) like the changing hands economic activities and the improvement of stock of dwelling in a community with the construction of farm-to-market road networks.In relation (and to your next question), these project studies use the postdating decimal techniques:1. Net Present Value (NPV) so-called ‘time value of money’ formula that discounts the money utilizing a bankable interest rate over the payback period. There must be a surplus by the end of the payback period.2. Internal Rate of Return (IRR) which is an interpolation technique to happen the rate of return which must be higher than the iprevailing interest rate utilized in the NPV. If the IRR is too eminent, the proponent is reded to inquire the bank instead of the government.3. Benefit-cost ratio which quantifies the benefit over the cost of the project which must be plus. When change by reversal this formula go the Return on Investment (ROI)4. Recoupment (payback period) should be within the alloted paying period or balanced to length of the crediting program.5. The Breakeven Analysis is appended by some studies which necessitate information on the repaired and adaptable costs of the project and how much sales is necessitated to retrieve investment bespeaking the period that project starts paying for itself
Add your own answer in the comments!