Investment appraisal
A company invests fiancé to derive a return. This return is important because:
- It represents the reward the business stakeholders and owner of the business get in staking their money on the business currently and in the future
- It rewards the business creditors through payments
- It enables part of the earnings (savings) to be re-invested in the business
As a financial manager one should be concerned with how the business funds are being invested to discover if the business is growing. There are a number of methods for analyzing an investment. These methods fall into the traditional and modern approach categories
The traditional methods include:
- Pay back period method
- Accounting rate of return method
The payback period method assesses the investment by looking at the inflows and outflows of cash over time to ascertain how soon the investment can pay back. These cash flows evaluate the period of time it takes a business venture to derive sufficient cash inflows equivalent to the cost of the investment. An assessment of the cash flows is a popular approach by traditional managers who use it to ascertain the time taken to recover in terms of cash from operations and the original cost of the venture. Cash flow analysis is an important preliminary screening stage to determine the viability of a venture and will also show clues on the venture’s profitability.
Computing the pay back period can be achieved in two ways
Under uniform annual incremental cash flows in which case the assets generate uniform cash flows and therefore the pay back period (PBP) can be calculated as:
- PBP = Initial cost of venture / Annual increment
The shorter the PBP the more viable the investment
Under non uniformity PBP calculations are cumulative whereby the net cash flows are accumulated each year until initial investment amount is recovered.
About the Money tree financial software
The money tree financial software is one of a kind enabling the user to carry out various financial obligations on personal on corporate level. The software is intuitive allowing the user to feed in data at defined user interface from which the financial reports can be generated (see attached file of the cash flow report).
The software offers many reports and allows the user to set limits to some of the submitted data in order to generate customized reports (Money Tree Software 1). Basing on the assessment form its use, the money tree financial planning software is suitable for a user who intends to quickly derive their financial plan even when they have limited prior knowledge because it is simple to use and friendly.
The cash flow report generated by the software (as attached) is based on a 30,000 annual income figure and an individual who is 23 year old. The software is bale to calculate the shortage or surplus and generate a desirable expense or budget. However, there is need to customize some parameters of the software to ensure that the reports and financial plan generated is suitable for the particular situation.
Conclusion and recommendation
The money tree financial software is just one of the several financial investment evaluation and planning tools that is intuitive and friendly to use.
The money tree financial software is worth recommending especially for a user with limited financial knowledge but in need of a simple financial plan.
Works Cited
Money Tree Software.Download Your Free Trial of Silver Financial Planner. moneytree.com, 2011 Web.