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Financial feasibility of project

Financial feasibility
It may be defined as the process of obtaining relevant economic information about a project in order to establish its financial feasibility. It is undertaken as one of the feasibility analysis of the project formulation. Most of the data required for the financial analysis are obtained from market analysis, technical analysis and cost analysis. Financial analysis not only deals with the financial aspect of a project but also with its operational aspects.

Types of financial analysis

External analysis Internal analysis Horizontal analysis Vertical analysis

On the basis of material used Financial analysis On the basis of operations

On the basis of material used

External analysis The analysis is done by outsiders who do not have access to the detailed internal accounting records of business firm. These outsider include. I. Existing investor II. Potential investor III. Existing creditors IV. Potential creditors V. Government VI. Credit agencies VII. General public

Internal analysis The analysis conducted by person who has access to the internal accounting records of a business firm is known as internal analysis. These analysis mainly performed by executive and employees of organization as well as government agencies.

On the basis of operation

Horizontal This analysis refer to the comparison of financial data of company for several years. The figure for this type of analysis presented horizontally over number of columns. There are 2 tools for this analysis:I. Comparative statement II. Trends percentage

Vertical analysis This analysis refers to the study of relationship of various items in financial statement of one accounting period. It is also known as static analysis. There are 2 tools for this analysis:I. Common size financial statement II. Ratio analysis

To Determine the financial and operational Performance of the project is satisfactory or not, the financial data is analyzed. Different method use for this purpose. The purpose of each method is to present the data in a simplified manner so that their utility can be understood. This is a continuous process which may be employed to analysis the past or future financial position of the project.

Devices Of Financial Analysis

Comparative analysis Trend analysis Ratio analysis Fund Flow Analysis Cash Flow Analysis Break Even Analysis

Comparative Analysis
Comparative analysis is an analysis of financial position of the enterprise at different time. With The Help of this analysis we can know about the nature and quantum of the change in different items and it also help in future estimates. Generally Balance sheet and income statement are prepared in the comparative form for the financial analysis purpose.

Trend analysis
This analysis help in future forecast of various items on the basis of the data of previous years. Under this method one year is taken as the base the year on its basis the ratio in the form of percentage for other year is calculated. From the study of these ratio change is examined and trend is estimated.

Ratio Analysis
Ratio analysis is the technique of the analyzing the financial statement. It helps in estimating financial soundness or weakness. Ratio is the quantitative relationship between the two items for the purpose of comparison. Ratio analysis is a process whereby the financial statements are analyzed and interpreted through ratio.

Fund Flow Statement

The Fund flow statement is a statement which shows the movement of the fund and is a report of the business undertaking. It is a method by which we study change in financial position of a business enterprise between beginning and ending financial dates.

Cash flow statement

Cash play a very important role in the entire economic life of a business a firm needs cash to make payments to its suppliers, to incur day to day expenses and to pay salary, wages, dividend etc. Cash flow are classified from main three category these are : Cash Flow from Operating Activities Cash Flow from Investing Activities Cash flow from Financing Activities

Break Even Analysis

The Break even Analysis is the analysis of the capacity at which operations pass from profit to losses or vice versa. Break even is the mirror of our enterprise. There are two method of break even analysis these are : Algebraic method Chart method

Classification of costing
Classification by nature or elements Functional classification Classification on the basis of behavior Classification on managerial decisions and control:Marginal costing Opportunity cost Standard cost Differential cost

Feasibility of a project costing system

Clear objectives Study the project Study the enterprise

Deciding the cost structure

Selecting the cost rates Introduction of the system Follow ups

Cost sheet
For estimating the cost of the project the entrepreneur prepare a sheet which shows the detailed cost of the project called cost sheet. it has various advantage like It facilitates comparisons Helps the management in fixing the selling prices Act as a guide to the management.

Performa of cost Sheet