Investments are essentials in an organization as they enable the generation of revenue that run the entity. An organization should always consider analyzing different projects before making a decision on which they can put their income. It is because different projects will always have different returns that have disparities regarding cash flows and other management aspects. In most cases, the most important aspects of analyzing in a project include restitution on investment, the payback period, and looking at the risks that are associated with each project. The higher the risk, the greater the loss that is related to the project. This paper analyzes the different projects that the company intends to invest and providing advice on the best four project that the organization should focus.
Ranking by analysis of the Cash flow each Project
Cash flow refers the amount of money that a project generates to the business once it has been initiated. In this case, the project with the higher cash flow should be the recommended since it produces a large amount of revenue to the business. In this case, in the analysis of the eight projects that the firm thinks on investing there are four that can be classified as best. In this case, Project 3, Project 4, Project 5, and Project 8 have the following cash flows, $10,000, $ 3,561, $4,200, and $4150 respectively. This indicates that Project 3 has the highest generation of money flow followed by the other projects. Therefore, as an analyst, the above four projects are the best if the above yardstick is considered.
Better Quantitative methods to Rank the Project
Ranking the project can be done by some quantitative methods that are used to determine the best project. In this case, it is important to incorporate different ways in analyzing the various projects in business. In this case, one of the best technique that can be applied in the above analysis is the calculation of Net Present Value (NPV). The NPV is an important method that accounts for the time value of money in a particular project. This analysis is elaborated further in the excel spreadsheet where each projects NPV has been calculated. In this case, we are able to see the best project in terms of the NPV and not cash flows.
The Ranking Found using the Quantitative Methods
The ranking that is found using the NPV method is quite different from that used in the analysis using the cash flows of the business. In this case, the use of NPV in the analysis is better compared to analyzing using the cash flows. It is because the use of cash flow is somehow shallow and does not exhibit the real potential of the business, which implies that an organization can be having higher cash flow but the investment may end up not being the most suitable. From the above analysis, we can see that the projects have changed regarding NPV because previously project three was the best regarding cash flow but in this case, it lags behind as project 8 is exhibited as the best. Therefore, in analyzing the project it is better to consider project 8 over other projects.
Real Investment Projects with similar Cash Flows
There exist similarities as those displayed in the table. It is indicated by the amount of cash flow that is generated by each project over a period of years since the establishment of the investment. In this case, the cash flows should not only be used in analyzing the investments and thus there should other methods incorporated.