Business
Investment Criteria
Investment criteria refer to the specific factors and benchmarks that businesses use to evaluate potential investment opportunities. These criteria typically include considerations such as return on investment, risk assessment, market potential, and alignment with the company's strategic objectives. By establishing clear investment criteria, businesses can make informed decisions about where to allocate their financial resources for maximum impact and growth.
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4 Key excerpts on "Investment Criteria"
eBook - ePub- E.J. Mishan, Euston Quah(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
Part V Investment Criteria 21 Introduction to Investment Criteria 1 Investment Criteria are the bêtes noires of the economist. Although we shall begin by examining the more familiar proposals in the following chapters in order to reveal the particular difficulties inherent in proposals to reduce a flow of values over some time span to a single figure, we may as well mention such difficulties briefly at the start. First, the data are much harder to gather, or rather to predict, over future years than are currently available data. The unavoidable uncertainty of future benefits, disbenefits and outlays, may be dealt with in various ways. Yet, they are all somewhat arbitrary inasmuch as none can be anchored in the subjective preferences of those affected by the project being evaluated. Therefore, the treatment used to cope with uncertainty cannot be assumed, strictly speaking, to accord with a potential Pareto criterion. Second, even if it were the case that all the magnitudes for future benefits, disbenefits and outlays were absolutely certain, no investment criterion, no matter how sophisticated, can be sure of meeting a potential Pareto criterion. What is invariably being suppressed in the popular treatment of such Investment Criteria as discounted present value, or internal rate of return, is the basic economic rationale involved: what economic meaning can be attached to the magnitude arising from the application of any of these Investment Criteria? 2 Let us first be quite clear about the nature of these benefits and costs. An investment in, say, a railroad requires an initial outlay of capital to be spread over the first one or two years. These expenditures are clearly costs. So also are the anticipated outlays at future periods of time, whether for repairs, maintenance or for adding equipment, though their magnitudes are usually smaller than the initial outlays
eBook - PDFMicroeconomics
A Global Text
- Judy Whitehead(Author)
- 2020(Publication Date)
- Routledge(Publisher)
16 Investment Criteria Investment Decision Making; Cash Flow Analysis; Net Present Value, Internal Rate of Return, Benefit–Cost Ratio/Profitability Index, Payback Period A firm or an individual, as producer or supplier of goods or services, is often confronted with a multiplicity of decisions that have implications for a successful implementation or for the continued financial success of an enterprise. These decisions are of significance to firms or individual investors regardless of the scale of the operation, whether in rural areas or in urban commercial agglomerations. Investment decisions take on even greater significance where investing units seek to make the transition from a protected domestic market to a regional or global market or where there is need for new investment following a recession or economic crisis. At the heart of the decisions are those related to the selection and ranking of investment projects. This is a part of Project Analysis or Project Evaluation which is typically included under the heading of Capital Budgeting. There are tools of Project Analysis that assist in this type of decision making by the firm. These tools involve the use of Cash Flow analysis, specifically Discounted Cash Flow ( DCF ) analysis and the employment of Investment Criteria, including the Net Present Value ( NPV ) criterion, the Internal Rate of Return ( IRR ) criterion, the Benefit–Cost Ratio ( BCR ) or Profitability Index ( PI ) criterion and the Payback Period ( PP ) criterion. Moreover, in the standard production theory, producers are assumed to have perfect knowledge of their product and the market. The firm knows the available technology, the full specification of the production function, the full extent of the demand for its product and the price of the required factor inputs.
eBook - PDF- Darek Klonowski(Author)
- 2015(Publication Date)
- Palgrave Macmillan(Publisher)
THE VENTURE CAPITAL INVESTMENT PROCESS 78 Research investigating the decision criteria of venture capital- ists has evolved over time, but has produced modestly consistent results. Three distinct phases can be identified. The earlier research conducted in the 1970s and 1980s focused on identifying the cri- teria used by venture capitalists in evaluating potential businesses and ascertaining their relative importance through the usage of descriptive statistics. The second wave of investigations focused on the use of linear statistical methods to condense the decision cri- teria into identifiable groups. Five groups or criteria reflecting five types of risks in venture capital investment were identified: man- agement risk, investment risk, competitive risk, operational risk, and cash out risk. Others came up with similar decision criteria and identified the decision-making criteria focusing on the importance of management, market, product, external environment, and cash out. In an attempt to advance prior investigation (which had previ- ously concentrated on the usage of a “laundry list” of decision cri- teria), other groupings of decision-making criteria were identified, including those related to product-market, strategic-competitive, financial, management-team, and management competence. While considerable insight had been achieved by the middle of the 1980s, researchers still felt that the decision-making process of venture capitalists was not yet completely understood. One of the most distinguished academics in this area stated that prior research failed to capture and convey the richness, subtlety, and discernment embodied in the venture capitalist’s decision process and criteria. Such a statement underscored the inability of researchers to fully quantify the complexities of the venture capital decision-making process.
eBook - PDFPlanning Municipal Investment
A Case Study of Philadelphia
- William H. Brown, Jr., C. E. Gilbert(Authors)
- 2016(Publication Date)
254 Planning Municipal Investment the planner to identify all of the variables involved, let alone relate all of the possible outcomes of the alternative investment opportunities. In practical terms this means that what will be used in the making of choices are a smaller number of variables which serve as surrogate measures for these community values. Given the identification of such a variable, the planner can attempt to estimate certibus paribus the consequences of alternative projects in terms ofthat variable. If more than one of the variables can be identified, similar analysis can be carried through. W h a t this means, of course, is that the criteria used by the planner will only have meaning in terms of the particular variable used. T h e y are in no sense criteria for an optimus optimorum. For example, suppose we wish to achieve in a city capital budget maximum employment within the city, or a certain distribution of income. All projects might be ranked in terms of each of these variables, but it would only be the greatest coincidence if the rankings for each value directly corresponded with each other. It is here that a higher level of decision making must be called upon. Within the framework of formal analysis used here, it is only the legislature and the mayor who can decide on the general weighting to be given the broad goals of the community. 1 Thus, when the term criterion is used it should be understood as, at best, a rough index to some complex of community values. Economic Analysis. Economic analysis is one important technique that may be of use in evaluating projects. If this analysis is used, the criterion is that of achieving 1 In the technical language of the economist, the analyst attempts to define an efficiency locus while the higher level decision is con-cerned with picking a point on this locus. See, for example, R. A. Musgrave, The Theory of Public Finance (New York, 1959), pp. 80 ff. Criteria for Public Investment 255 economic efficiency.
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