Methods for Evaluating the Effectiveness of Investments With Emphasis on Software Tools

Abstract

Investing in the company is a necessary process that ensures business continuity and which determine the possible growth of company value. It is therefore very important to make decisions about long-term investment capital, whose effects are expected in the future and that has an impact a large number of factors. The basis of investment decisions in assessing whether the investment will fail to provide a return on invested capital and returns on that capital in accordance with the requirements of participants in the financing of the project. Rating the effectiveness of investment is a necessary precondition making any investment decisions and requires the application of appropriate methods that enable quantitative expression of performance indicators of realization of the investment project. Most of the work is devoted to analysis methods for evaluating the effectiveness of investment projects with emphasis on the existing and available software tools. As in other areas of economic analysis, and this is very suitable for the development and subsequent use of certain software tools and solutions. Them by purpose can be divided into simpler tools that the established mathematical definition marks the effectiveness of the investment, the implementation of the program established algorithm gives results of the evaluation of effectiveness, which significantly reduce the time required for the calculation of the default start and the required parameters (parameters necessary depending on the elements that data analytic assessment effectiveness is taken into account), and to complex software solutions that take into account the huge number of parameters which can influence the result and complex mathematical apparatus provide a predictive solutions with a certain percentage of probability (such solutions are used by large investment houses in the global investment markets, due to restrictions approach is not taken within the scope of this paper).
Furthermore, all software tools can be divided into desktop or network server solutions and solutions based on the now-popular Web paradigm (The review is focused on specific web solutions).
Depending on whether you consider the “time” value of money methods for evaluating the effectiveness of investments are divided into two main groups: static and dynamic. Within the static methods are treated by methods of the average accounting rate of return and payback period method. These methods, despite major shortcomings, including the subjectivity of choice of criteria for evaluating the effectiveness of investments, are widely used in practice assessment of investment projects. The paper covered in practice commonly used dynamic methods: discounted payback period, net present value, profitability index method and the internal rate of return. Past experience has shown that managers of enterprises must master the ability to make decisions on investments and to increasingly use modern dynamic methods for evaluating the effectiveness of investments. It turned out that the methods for evaluating the effectiveness of investment not only for the selection of investment projects, but also point to the potential weaknesses of the investment project, which may occur during implementation and that company managers should pay attention at right time. Spotting these issues gives the possibility to avoid or reduce their negative effects on the realization of the investment project and, ultimately, to correct itself and investment decisions.
Using high-quality software tools, investment managers can focus on the results obtained from the chosen analysis methods, drastically reducing the time required to calculate it on the basis of given parameters. This creates the precondition for the possibility of effective development of analysis on the basis of different methods per project as the same project could be reviewed from several dierent aspects, in accordance with the advantages and disadvantages of the methods used.