NPV - what is it? NPV: the formula. NPV investment project

Effective investment processes play a crucial role in the development of the economy, increasing its competitiveness. The problem of making them dynamic and non-alternative is very relevant for modern Russia. With the help of them a qualitatively new level of means of production is achieved, an increase in its volumes, the development of innovative technologies.

Is the topic of investment relevant for Russia? Perhaps the answer to this question will be Rosstat's information for 2013, indicating that the annual flow of foreign investment in the country's economy, compared with last year, increased by 40%. In general, the accumulated foreign capital in the Russian economy at the end of last year amounted to 384.1 billion US dollars. Most of the investment (38%) falls on the manufacturing industry. 18% of their volume is invested in trade and repairs, almost as much (17%) - in the mining industry.

According to statistics, since 2012, economic observers have determined that Russia ranks sixth in the world in terms of its investment attractiveness and at the same time is the leader among the CIS countries in this indicator. In the same 2012, foreign direct investments in the Russian market covered 128 large objects. The dynamics of the process is obvious. Already in 2013, according to Rosstat, only the volume of foreign direct investment in the Russian economy increased by 10.1% and reached $ 170.18 billion.

There is no doubt that all these investments are made meaningfully. The investor preliminarily prior to investing his funds, of course, evaluates the attractiveness of the project commercially, financially, technically, socially.

Investment attractiveness

The above statistics also have a "technical" side. This process is deeply comprehended by a well-known principle, according to which it is preliminary to measure seven times. The essence of investment attractiveness as an economic category lies in the pre-determined profit of an investor immediately before investing its capital in a particular company or project. When investing, attention is paid to the solvency and financial stability of the start-up at all stages of developing the money invested in it. Therefore, the structure of the investment itself, as well as its flows, should in turn be optimized.

This is achievable if the company that implements such a cash investment systematically implements strategic management of investments in the start-up. The last is:

• A sober analysis of the long-term goals of its development;
• Formation of an adequate investment policy;
• Realization of it with observance of the necessary control at constant cost correction in correlation with the market situation.

The previous volume of investment activity of the startup is studied, priority is given to the possibility of reducing current costs, raising the technological level of production.

When formulating a strategy, it is necessary to take into account the legal conditions for conducting it, assess the level of corruption in the segment of the economy, and forecast the conjuncture.

Methods for assessing investment attractiveness

They are divided into static and dynamic. When using static methods, a significant simplification is allowed - the cost of capital is constant in time. The effectiveness of static capital investments is determined by the period of their recoupment and the efficiency factor. However, such academic indicators are of little use in practice.

In a real economy, dynamic indicators are often used to estimate investments. The subject of this article will be one of them - net discounted income (NPV, it is also the BHD). It should be noted that, in addition to it, dynamic parameters such as:

• Internal rate of return (IRR);
• Investment profitability (PI);
• Discounted period of investment payback (DPP).

But still among the above indicators in practice, the central place remains for the net discounted income. Perhaps the reason is that this parameter allows you to correlate the cause and effect - the investment with the amount of money generated by them. The feedback in its content led to the fact that the standard investment criterion is perceived by NPV. What does this figure still underestimate? These questions we will cover in the article also.

The basic formula for determining NPV

The net present value is attributed to methods of discounting cash flows or DCF methods. Its economic value is based on a comparison of IC's investment costs and adjusted future cash flows. Basically, the BHD is calculated as follows (see Formula 1): NPV = PV - Io, where:

• PV - the current value of the cash flow;
• Io - the initial investment.

The above NPV-formula simplifies the showing of money incomes.

A formula that takes into account the discount and one-time investment

Of course, the above formula (1) should be complicated, if only to show in it the mechanism of discounting. Since the inflow of funds is distributed over time, it is discounted by means of a special coefficient r, which depends on the cost of capital investments. By discounting the parameter, it is possible to compare the time-varying cash flows (see formula 2), where:

• R - discount;
• CF _t - investment payments for t years;
• N - number of stages of project implementation.

The NPV formula should take into account the cash flows adjusted by the discount (coefficient r) determined by the analysts of the investor in such a way that both the inflow and the outflow of money are taken into account in the real-time investment project.

According to the method described above, the relationship between investment performance parameters can be represented mathematically. What law expresses the formula that defines the essence of NPV? That this indicator reflects the cash flow received by the investor after the implementation of the investment project and the cost recovery envisaged in it (see formula 3), where:

• CF _t - investment payments within t years;
• Io - the initial investment;
• R - discount .

The net present value (NPV formula given above) is calculated as the difference between the total cash receipts that are updated by a certain point in time for the risks and the initial investment. Therefore, its economic content (meaning the current version of the formula) is the profit received by the investor with a powerful one-time initial investment, i.e., the additional cost of the project.

In this case we are talking about the criterion of NPV. Equation (3) is a more realistic tool for a depositor of capital, considering the possibility of investing it in terms of subsequent benefits. Operating with the current cash flows, it is an indicator of the benefits for the investor. The analysis of its results really influences its decision: to make investments or to refuse them.

What does the investor say negative values for NPV? That this project is unprofitable, and investments in it are unprofitable. He has the opposite situation with a positive BHD. In this case, the investment attractiveness of the project is high, and accordingly, such an investment business is profitable. However, it is possible that the net present value is zero. It is curious that in such circumstances, capital investments are made. What does the NPV testify to the investor? That this investment will expand the company's market share. It will not bring profits, but will consolidate the state of the business.

Net discounted income with a multi-step investment strategy

Investment strategies are changing the world around us. Well on this topic said the famous American writer and businessman Robert Kiyosaki that the risk is not the very investment, but the lack of management. At the same time, constantly progressing material and technical base forces investors not to one-off, but to periodic investments. The NPV of the investment project in this case will be determined by the following formula (3), where m is the number of years during which investment activity will be carried out, I is the inflation rate.

Practical use of the formula

Obviously, it is quite laborious to make calculations using formula (4) without using auxiliary tools. Therefore, the practice of calculating return on investment indicators is quite widespread with the help of tabular processors created by experts (for example, implemented in Excel). Characteristically, in order to evaluate the NPV of the investment project, several investment flows should be taken into account. At the same time, the investor analyzes several strategies at once, in order to finally understand three questions:

• How much investment is needed and in how many stages;
• Where to find additional sources of financing, lending in case of their necessity;
• Whether the volume of forecasted revenues exceeds expenditures related to investments.

The most common way to calculate the real viability of an investment project is to determine the NPV 0 parameters for it (NPV = 0). Tabular form allows investors without extra time, without seeking the help of specialists, for a minimum of time to visualize the various strategies and, as a result, to choose the optimal option for the investment process.

Using Excel to determine the BHP

How in practice do investors make a predictable NPV calculation in Excel? An example of such a calculation will be presented below. Methodological support of the very possibility of determining the effectiveness of the investment process is based on the specialized built-in NPV () function. This is a complex function, working with several arguments, characteristic of the formula for determining net present value. Let's demonstrate the syntax of this function:

= NPV (r; Io; C4: C11), where (5) r is the discount rate; Io - initial investment
CF1: CF9 - the project's cash flow for 8 periods.

In general, based on the initial investment of 2.0 million rubles. And subsequent cash flows at nine stages of the investment project and a discount rate of 10%, the net discounted income of NPV will be 186.39 thousand rubles. The dynamics of the same cash flows can be represented in the form of the following diagram (see diagram 1).

Diagram 1. Cash flows of the investment project

Thus, it can be concluded that the investment is profitable and promising, as shown in this example.

Schedule of net present value

The modern investment project (IP) is considered today by economic theory in the form of long-term calendar plan of investments of capital. At each of its time stages, it is characterized by certain incomes and costs. The main revenue item is revenue from the sale of goods and services, which are the main purpose of such an investment.

To build an NPV-graph, you should consider how this function behaves (the importance of cash flows), depending on the argument - the duration of investment of various values of the HDR. If for the above example, then at its ninth stage we get the aggregate value of the private discounted income of 185.39 thousand rubles, then, having limited it to eight stages (say, selling a business), we will reach a total of 440.85 thousand rubles. The family - we will go into a loss (-72.31 thousand rubles), six - the loss will become more significant (-503.36 thousand rubles.), Five - (-796.89 thousand rubles.), Four - ( -345.60 thousand rubles.), Three - (-405.71 thousand rubles.), Limited to two stages - (-1157.02 thousand rubles.). This dynamics shows that the NPV of the project tends to a long-term increase. On the one hand, this investment is profitable, on the other - the stable profit of the investor is expected from around its seventh stage (see Chart 2).

Diagram 2. The graph of BHP

Choice of the investment project variant

When analyzing diagram 2, two alternative variants of a possible investor strategy are revealed. Their essence can be interpreted as simple as possible: "What to choose - less profit, but immediately or more, but later?" Judging by the schedule, NPV (net present value) temporarily reaches a positive value in the fourth stage of the investment project, however, provided a longer investment We are entering a phase of stable profitability.

In addition, we note that the value of BHD depends on the discount rate.

What does the discount rate take into account

One of the components of formulas (3) and (4), by which the project NPV is calculated, is a certain discount percentage, the so-called rate. What does it show? Mainly, the expected inflation index. In a steadily developing society, it is 6-12%. Let's say more: the discount rate directly depends on the inflation index. Recall the well-known fact: in a country where the inflation rate exceeds 15%, investment becomes unprofitable.

We have the opportunity to test this in practice (we, after all, have an example of calculating the BHD with Excel). Recall that the calculated NPV indicator with a discount rate of 10% at the ninth stage of the investment project is 186.39 thousand rubles, which demonstrates the profit and interests the investor. We will replace in the Excel table the discount rate by 15%. What will the function of NPV () show us? Loss (and this is at the end after the completion of the nine-stage investment program!) In 32,4 thousand rubles. Will the investor agree to a project with a similar discount rate? By no means.

If we arbitrarily reduce the discount to 8% before calculating NPV, then the picture will change to the opposite: net discounted income will increase to 296.08 thousand rubles.

Thus, there is a demonstration of the advantages of a stable economy with low inflation for successful investment activity.

The largest Russian investors and NPV

What is the result of successful accounting of winning strategies by investors? The answer is simple - to success! Let's present the rating of the largest Russian private investors following the results of the last year. The first position is occupied by Yuri Milner, co-owner of Mail.ru Group, who founded the DTS fund. He successfully invests in Facebook, Groupon Zygna. The scale of its investment is adequate to the modern world. Perhaps that's why he takes the 35th position in the world ranking, the so-called Midas List.

The second position is for Viktor Remsha, who made a brilliant deal in 2012 to sell 49.9% of the Begun service.

The third position is occupied by Leonid Boguslavsky, co-owner of about 29 Internet companies, including megamarket Ozon.ru. As we can see, the three largest domestic private investors make investments in Internet technologies, that is, the sphere of intangible production.

Is this specialization random? Using the NPV definition tool, we'll try to find the answer. The above investors, due to the specifics of the Internet technology market, automatically enter the market with a smaller discount, maximizing their benefits.

Conclusion

Modern business planning in terms of calculating the return on investment and the criticality of changes in spending is currently using a preliminary efficiency analysis, including the definition of net discounted income. For investors, it is very important to determine the sustainability of the indicators of the basic version of the investment project.

Universality NPV allows to do this by analyzing the change in the parameters of the investment project at its zero value. In addition, it is a fairly technological tool, implemented for a wide range of users in standard tabular processors with the help of built-in functions.

It is so popular that on the Russian-language Internet even online calculators are available to determine it. However, the Excel toolkit allows you to analyze more variants of the investment strategy.