Approaches for evaluating and financing investment projects

• Author: Maria-Loredana Popescu
• Position: Teaching Assistant, 'Nicolae Titulescu' University, Bucharest
• Pages: 253-260

Maria-Loredana Popescu

253

LESIJ NR. XVIII, VOL. 2/2011

APPROACHES FOR EVALUATING AND FINANCING

INVESTMENT PROJECTS

Maria-Loredana POPESCU∗

Abstract

This article presents the financial investment approach and the investment evaluation

methods, which are criteria for assessing both investment projects and their funding sources. An

important role in the analysis carried out is played by the investment decision and financing

decision quality. Making an investment decision implies computing the related investment

efficiency indicators. They allow the comparison of several variants of the same investment project

as well as their comparison with other projects in the same industry or in other industries. The

financing decision concerns the selection between their own sources (share capital, depreciation

fund, profits, reserve funds, additional capital, revenues from investments), attracted sources

(domestic resource mobilization) and borrowed sources (credits).

Keywords: financial approach, investment evaluation methods, investment decisions,

profitability, funding sources.

Introduction

Adopting an investment project involves a careful analysis of the company overall standing.

Investment projects have a particular importance for developing a business as they prepare the

production capacity and conditions to be achieved, therefore influencing the results and the

financial balance. The project idea comes from the need to meet a current demand or from the

desire to take advantage from some opportunity.

The decision regarding the project accomplishment requires that a lot of elaborated basic

actions should be carried out by specialists from various fields of interest. As investments require

important long-term financial resources, investment projects present significant risks, most often

their launching being irreversible. Favorable financial perspectives can be obtained either by

continuing the existing activities or by making investments and launching new activities. The

company's financial managers must assess past investments and future investment needs. The past

investments must be evaluated and the effects of the future accepted projects must be foreseen.

The term "investment" means, strictly speaking, the use of financial resources that are meant

to allow the entry into the company’s patrimony of fixed inputs (buildings, constructions,

machinery, plants, equipment, tools, etc.) either by acquisition or by their effective creation.

In financial terms, investment means a long-term capital asset undertaking so as to achieve

higher future returns.

The funding of investments covers, to a large extent, the sphere of financial requirements at

company level and takes into account both the own and borrowed sources as well as the permanent

and temporary sources.

The investment effect enhances the volume and quality of a company’s activity.

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∗ Teaching Assistant, “Nicolae Titulescu” University, Bucharest, (e-mail: maria.loredana_popescu@yahoo.com)