What Are the Different Types of Financial Decision Analysis?

Long-term financial decisions are those that have been paid for more than one year and that have a long-term impact on the company's revenue and expenditure.

Long-term financial decisions

Right!

Long-term financial decisions are those that have been paid for more than one year and that have a long-term impact on the company's revenue and expenditure.

For different types of investment, different evaluation and decision-making methods are needed. According to the purpose, content and nature of investment, long-term financial decisions can be divided into different types.

(1) Decisions on investment in fixed assets and investment in current assets

According to the nature of the funds and the role they play in the operation and the different forms of turnover, they can be divided into fixed asset investments and current asset investments. In order to increase the production and operation capacity of an enterprise, it is necessary to increase fixed assets, and often it is necessary to increase current assets accordingly (such as inventory materials, current accounts, etc.). When the capital construction project is completed for delivery, a part of current assets (materials, low-value consumable crystals, etc.) are often transferred at the same time. The working capital investment has the nature of advancement and turnover. Except for the loss and the spread loss during asset evaluation, it can generally be fully recovered. According to regulations: New construction and expansion enterprises must raise 30% of their working capital, so that the State Bank can lend.

Investment in fixed assets has the following characteristics:

1. Long-term: The investment recovery period is long, so the effect on the financial income and expenditure of the enterprise is also long;

2. Large cost: Generally requires a lot of funds, which needs to be raised specifically;

3 Decisive: it has a decisive influence on the company's operating capacity and profit and loss;

4 Irreversibility: Once completed, it is difficult to change or move, and it is not easy to rebuild, relocate or sell;

5. High risk: Investment generally relates to corporate income and operating capabilities for several years to decades. The accuracy of pre-splash is limited by many factors, and the risk is greater. Due to the different characteristics of fixed asset investment and current asset investment, Xixi has to use different calculation methods in its financial decisions.

(II) Tactical investment decisions and strategic investment decisions

Divided by the degree of investment impact, it can be divided into tactical investment decisions and strategic investment decisions. Investments made to save costs, reduce sales costs, and maintain and improve quality are generally limited to updating existing equipment or reforming management institutions and operations. They generally do not change the production capacity and scale of an enterprise. It will affect the development prospects of the enterprise and belongs to "tactical investment decision". In order to change the business direction, expand the production capacity and scale of an enterprise, or develop new businesses and operate new products, a large amount of capital is required and the investment period is long. Decisions in this area largely determine the future and destiny of an enterprise, and are strategic investment decisions.

(3) Independent investment decisions and related investment decisions

Dividing from the mutual relationship between investment plans or construction projects, it can be divided into independent investment decisions and related investment decisions. Any investment that is not related to operating income and expenditure, such as building a trade center building, buying a truck, increasing the inventory of a certain product, and so on, can make decisions independently and independently of each other. investment". For this type of decision-making, there is generally no question of comparative choice, but it is feasible or not feasible. Whether to adopt or reject is just a question, so it is also called "decisive decision". Relevant investments can be divided into complementary investments and investments that can be replaced (excluded). All investments that are necessary to support each other, such as power plants and transmission lines, oil fields and oil pipelines, ships and terminals, are complementary investments that must be comprehensively analyzed to make a total investment decision. All investment schemes or construction projects can achieve the same goal and can be replaced by each other, that is, only one of the mutually exclusive investments must be selected, such as buying a 4 ton or 5 ton truck, whether to supply water for wells or repair canals, and buildings. It is the alternative investment (mutually exclusive investment) that is chosen in land A or land B. For alternative investment plans or construction projects, "optimal decisions" must be made. Through analysis, calculation, evaluation and comparison, select the reasonable or most satisfactory solution, that is, the best investment effect.

(IV) Static analysis method and dynamic analysis method

In long-term financial decision-making, financial evaluation of each investment scheme or construction project must calculate their investment benefits and investment repayment period. According to whether the time value of funds (currency) is considered in the calculation method, it is divided into a static analysis (calculation) method and a dynamic analysis (calculation) method.

The static analysis (calculation) method is an analysis calculation method that does not consider the time value of funds. These methods include: investment repayment period method, average rate of return method, investment profit rate, investment profit and tax rate, and so on. Dynamic analysis (calculation) method refers to the analysis and calculation method that takes into account the time value of funds in financial evaluation. This method emphasizes the use of compound interest calculation methods to calculate the time factor and make value judgments. The dynamic analysis method, also known as the "equivalence calculation method", converts the inflow and outflow of funds at different times into a value at the same time point according to a certain discount rate. This is an economic comparison of different programs and different projects. Provides an equivalent foundation. "Equivalent method" is divided into "present value method" (discount method) and "final value method". In the long-term financial decision-making, the present value method (discount method) is commonly used, that is, the compound interest method is used to exchange (discount) both the cash outflow and cash inflow at the discount rate to calculate the initial value at maturity (present value) Based on the calculation methods that are then compared.

In long-term financial decision-making, that is, investment decision-making, dynamic analysis and calculation methods commonly used are: the net present value method, the net present value method, the internal rate of return method and so on. Extensive implementation and use of dynamic analysis in financial decision-making are of great significance for investors and decision makers to establish the concept of capital turnover, the concept of time value and input-output of funds, the rational use of construction funds, and the improvement of investment benefits.

The method of long-term financial decision-making, that is, the financial evaluation method of investment plans (construction projects). Financial evaluation is to analyze the cost and benefit of a measurement plan (project) according to the country's current fiscal and taxation systems and current prices, to examine the profitability and solvency of the plan (project), and to determine its financial feasibility.

According to the "Financial Evaluation" stipulated in the "Economic Evaluation Method of Construction Projects" of the State Planning Commission: financial profitability analysis, including calculation of investment payback period, financial net present value, financial net present value rate, financial internal rate of return, investment profit rate , Investment profit and tax rate and other indicators; the project's solvency analysis is mainly to calculate the fixed asset investment loan repayment period indicators. Financial evaluation takes the financial internal rate of return, investment recovery period and fixed asset investment repayment period as the main evaluation indicators; according to the characteristics of the project and actual needs, it can also calculate the financial net present value, financial net present value rate, investment profit rate, investment profit Tax indicators and other auxiliary indicators.

(I) Investment recovery period

The investment recovery period refers to the payback period of the original investment, that is, the time required to offset the entire investment (including fixed asset investment and liquidity-funding) with the net income of the investment project or program. It is an important evaluation reflecting the investment recovery ability index. The investment recovery period is calculated from the year when the construction is started, and the time required to determine the cumulative cash inflow to fully compensate the cumulative cash outflow, that is, the time when the cumulative net cash flow is equal to zero.

That is: cumulative cash inflows-cumulative cash outflows = 0

Or: Operating income-(operating costs-basic depreciation)-total net investment = 0

The investment payback period can be calculated by using the accumulated net cash flow in the following table of the Financial Cash Flow Statement.

The calculation formula is: investment payback period = cumulative net present value flow begins to show positive annual score -1 + (absolute value of cumulative net cash flow in the previous year / net cash flow in the current year)

1 National Material Secondary Professional Education Self-study Exam Teaching Material Materials Financial Management. China Materials Press, May 1989. ^[1]