Concepts & Topics

Investment Analysis

Investment Feasibility Analysis

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A comprehensive investment feasibility analysis can serve as a key reference for wise judgments as well as assessment and selection of optimal plans by investors and business operators. However, professional feasibility analysis and research is mostly carried out by commissioned management, marketing, or investment consulting firms. Sometimes, turnkey plant contractors are also capable of providing comparable analysis and consulting services. The selection of such contractors enables you to make ideal choices with an equal emphasis on practical execution. Comprehensive investment feasibility analyses must include the following:

Market Feasibility Analysis
I. Industries and products
1. Linkage of up- and downstream industries and supply & demand conditions
2. Concentration of up- and downstream businesses
3. Likelihood of integration of up- and downstream businesses toward this industry
4. Barriers to entry into the industry
5. Product life cycle stages
6. Likelihood of emergence of substitutes
7. Technological development trends pertaining to industry products

II. Market analysis (global/domestic)
1. Supply analysis
Capacity scale evolution
Main supplier nations/suppliers and their production capacities/market shares/operating rates
Capacity expansion plans
Cost structure/economies of scale
2. Demand analysis
Market size (volume/value)
Market growth rate (global/domestic)
Future growth trends (global/domestic)
Price developments
Primary markets
3. Competitive analysis
Competitive advantages and disadvantages of existing businesses
Threats from potential entrants
Competitive advantages and disadvantages of this scheme

III. Marketing analysis
1. Production and sales volume and value
2. Major clients/sales regions and ratios
3. Private label brand/OEM ratios
4. Marketing strategy (4P)
5. Sales channels

Technology and Manufacturing Feasibility Analysis
I. Technology and R&D development
1. Manufacturing processes
2. Key technology factors
3. Technology source (purchased/jointly developed/self-developed)
4. Educational and career background of key researchers
5. Ratio of R&D personnel to total staff
6. Ratio of R&D expenses to total revenue
7. Patent rights/trademark rights/copyrights
8. Follow-up R&D projects and capabilities

II. Manufacturing analysis
1. Capacity design
2. Plant construction conditions
3. Self-manufacturing/outsourcing ratio
4. Yield rate/quality level
5. Plant site selection
6. Equipment selection
7. Raw material/part & component supply
8. Availability of public utility facilities (gas, water, electricity)
9. Solution of environmental problems
10. Plant construction schedules

III. Organization and management
1. Business philosophy
2. Organizational system design
3. Structure and background of major shareholders
4. Educational and career background of the management team
5. Applied management techniques

Financial Feasibility Analysis
I. Basic financial assumptions
1. Production and sales volume and value (output/price developments)
2. Cost projections (raw materials/labor costs)
3.Financial expenses (short-/mid-/long-term capital costs)
4. Accounts receivable/payable/days’ sales in inventory
5. Depreciation period, R&D and organizational expenses
6. Management and marketing expenses

II. Financial statement compilation (existing business/new schemes)
1. Projected income statement
2. Projected balance sheet
3. Projected cash flow statement
4. Projected earnings distribution statement
5. Projected financial ratio analysis

Investment Efficiency Analysis
I. ROI (Return on Investment) of the scheme
1.IRR (Internal Rate of Return)
2.NPV (Net Present Value)
3. Payback period method
4. Accounting rate of return method

II. ROI of shareholders
1.PER (Price-to-Earnings Ratio)
2. Net worth method

III. Capital-raising considerations
1. Debt ratio
2. Capital costs
3. Leverage effects

Risk Analysis
I. Risk factor definition
1. Market risks
Demand/preference changes
Price fluctuations
Competition with new products/substitutes
2. Technology risks
Technology readiness
Patent litigation
Technology update capabilities
3. Manufacturing risks
Raw material sources and price changes
Adaptability of new processes/equipment
Test run conditions
4. Operation & Management risks
Changes of partners, shareholders, business operators
Trade union movements
Environmental protests
Affiliate linkage
5. Financial risks
Business fluctuations
Capital turnover
Customer credit check

II. Coping strategies/plans for risk factors

III. Sensitivity analysis
1. Confirmation of most probable risk factors
2. Determination of volatility for the aforementioned risk factors
3. Calculation of impacts of various conditions on ROI
4. Identification of risk factors with the highest impact
5. Formulation of prevention strategies

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