Investment Analysis Process - Assignment Example

? Investment Analysis Introduction Investment analysis is basically the process of finding out how a given investment is likely to perform. Depending on how an investment performs, an investor would then decide if the investment is a viable one or not. Portfolio management strategy requires Investment analysis for the sake of proper analysis and having the basic knowledge of what is happening to an investment. Most often, the company owners find little time to perform the functions that would involve financial analysis. This gives them the opportunity to seek professional assistance (Arnold, 2012). Financial analysts as well investment analysts would then come in to review the operations of the company and the value system in place that either propels the company to higher levels or that which makes the investment get loses. In this process, one needs review past investments together with the new. The past investment review would give ideas and thoughts how the current investment can be improved. Also critical is that past investments can be helpful in forming the basis of policy formulation in a given investment. Past reflections are very important as it provides a platform where adjustments can be made as well as having a vibrant investment that is viable (Boehlje & Ehmke, 2012). Decisions made in the past can help in changing the future of an investment taking into consideration that past decisions can be useful in giving some advices. This makes an investment more vibrant. In any investment analysis, one should be able to look at the prevailing price at that particular time as well as well as having reasons for having an investment at that particular time. These then help in knowing whether the investment is having the best start or a false start. An analysis helps in reviewing the current investment as well as giving predictions based on future trends that could impact on the company. In having an investment that is viable, a lot of things need to be put into consideration. The most critical part in this exercise is continuous review of the data. From the data one is able to analyze and evaluate the data appropriately. An investment should be able to meet the expected financial goals set for it in terms of return on investments. Profits and risks are the main focus in an investment analysis. This is the most important aspect of an investment. Any analyst must look at the return on investments as well as the risks that are involved (Dong, 2008). These are important measurements in a given investment portfolio. Risk analysis is very important in any analysis. In the event the risk is very high, then a loss is very likely. When the risks are very high such that it becomes likely that a loss is eminent, the investment becomes less worth. Resale value and cash flows do not have any significance when the risk is too high because the investment has zero prominence. It should then be noted risk is however not definite in giving a financial analysis. When giving an analysis, a lot more factors need to be looked into for the sake of an all round investment analysis. Cash flow is another single factor that needs to be considered in an investment analysis. One of the ways through which can occur is through the dividends traded on by the public. When the public trade on the dividends, then a lot of cash can be generated for the company. Based on this, analysis can be made based on the amount that has been received through the dividends in relation to the projects (Arnold, 2012). Another way through which cash can flow into an investment is through the interest. This comes from the payments from the bonds. This is on a sure way of having cash flow into the investment. An investor would be very interested to know what about the investment is generating into the system. Through this they are able to determine and evaluate if the returns are of any value to the business and if it meets the expectation of the risk of the investment. An analysis of cash flow can be done through the future value of the cash flow. The investor gets to know what will happen in the future in terms of the cash coming into the investment. Projections could suggest a high cash flow or perhaps could just be low. This in essence would give clear guidelines on what the investment would look like based on the cash flow at that time (Vandekerckhove, 2011). Discount on cash flow is also an important tool of analysis and is important in giving indications on the future of an investment. An investor can thus determine the kind of investment to consider in the face of positive or negative cash flows. Resale value is also an important basis of analysis that needs to be considered when an investment is to be started. When an asset of an investment is sold, the prevailing market value becomes an important factor. For instance, if an asset has a higher market value at the time of the sale, there is a high possibility of profit maximization (Elton, 2010). An investor would want to have the value of an asset grow to some level. A high value of an asset makes it very profitable when it comes to the sale of the investment. An investment that has the assets appreciate makes it very viable for the investment. The value of an asset can easily be linked to cash flow that comes back into the investment after a resale. Methods of investments are varied and diverse. Thus the methods that are herein discussed are all useful in the analysis of any investment. An investor can be sure if the risk is worth the course if he uses all the investment analysis methods. Investors should have investments that fit into their plan. With a proper investment analysis, an investment can be revitalized in a manner that makes the investment a more viable option. Return on investments is the most important thing in an investment. A positive outcome shows a profit making (Arnold, 2012). One of the best ways of coming up with a conclusive outcome is by doing an object comparison between two projects that are similar to the project to be started. This program can be used to evaluate the effectiveness of an investment. If a given investment were projected as not being viable, experts would advise otherwise. Changes and tact can be changed based on the outcome on return on investments. This to a large extent helps the people concerned to identify areas of improvements and to effect changes as advised. Based on the outcome shown as a result of the returns, an investor is thus able to make conclusions on whether to give into the idea of investing. For every investment, there needs to be performance metric. This shows the highs and lows of a given investment. This in effect gives the investor an overview of what the investments entail. A stable investment is a good investment. Any investment that is prone and bound by some varied circumstances to end into a failure should be examined based on the value of such an investment. The risks that are involved in an investment to a large extent determine the direction of an investment. Assets that relate to an investment should be kept in good position because they are the best facilities that an investment can have. In the event of a financial need, the asset thus becomes very important in charting the course an investment takes. The same asset can act as a source of income when the company goes into a financial crisis. This is the biggest source of cash in an investment. Any business venture aims at profit making. Returns that are convincing make it possible for an investment to grow. Conclusion An investment analysis has important components that should be incorporated in an all-round assessment. Risks, resale value and cash flow are some of the basic analysis components that would work for any investment (Elton, 2010). It is important for investments to review investments from time to time to asses the viability of an investment. This is very important in making decisions that relate to any investment portfolio. An investment should seek financial expertise for the sake of having a clear understanding on what each aspect means for the investments. References: Arnold, G. (2012). The financial times guide to value investing: How to become a disciplined investor. Retrieved from Boehlje, M and Ehmke, C. (2012). Capital Investment Analysis and Project Assessment. Purdue extension. Dong, Y. (2008). Assessing investment analysis strategies for infrastructure renewal in Regional Transportation Planning. Elton, E. J. (2010). Modern portfolio theory and investment analysis. Hoboken, NJ: J. Wiley & Sons. Vandekerckhove, W. (2011). Responsible investment in times of turmoil. Dordrecht: Springer. Read More