Financial assessment in one of the factors considered by many investors. Actually, investors usually rely on the financial analytical results in order to settle their issues. Through efficient and proper financial analysis investors are able to detect and realize the strengths and weaknesses of the company or any other business organization. Thus, this essay aims at addressing the certain significant areas of the financial assessment that have to be primarily studied. Specifically, these areas include the purposes served by the financial feasibility analysis, the difference between business plan and feasibility study, an overview summaries of such components of feasibility study as marketing, technical, managerial, socioeconomic, and financial studies.
Purpose of Financial Feasibility Analysis
The purpose of the financial feasibility analysis is to help in realization of the investment suitability. To clarify, it is often used to determine the stability of an entity, solvency, liquidity and the probability of the business. If the business is predicted to be profitable, it is, markedly, worth the investment. Regarding any of a specific company or a business organization that is of an interest to the investor, the financial analyst normally inspects the companys income statement, the balance sheet and the cash flow statement. Talking about the purpose of the financial feasibility analysis re-enforcement, the financial analyst commonly extrapolates the organizations past performance conducts that is otherwise used to foresee or rather speculate the future status of the company. In addition, it is not only the investors who find the financial feasibility analysis important but also the credit firms. Namely, credit firms conduct financial feasibility analysis for the prospecting parties in order to qualify them for business loans, property taxes, insurance costs and, finally, loan repayment over the life of the loan.
Difference between Feasibility Studies vs. Business Plan
A feasibility study is an analysis that is implemented to realize the viability of a business idea or any project that is to be undertaken. It helps in answering such questions as whether the proposed business idea is to be accepted or if there is a need for it to be further elaborated.. Consequently, entrepreneurs often perform the feasibility studies before approving any project idea in order it to assist in determining if the business would be able to generate a sufficient cash flow and high profits. In other words, the feasibility studies define the sustainability of the business, its viability and the ability to achieve the long term goals and objectives of the entrepreneur.
On the other hand, a business plan is derived from a viable idea or project which is a subject to the feasibility studies findings. A business plan, therefore, outlines the functions that are to be fulfilled in order to make the business realizable. As a matter of fact, the business plan is based on the one selected alternative as opposed to the others that had to be reduced in order to attain the most realistic one. Accordingly, a business plan is regarded as the blueprint which specifies how the viable project can be implemented.
The market study is performed to help in establishing the viability of the proposed project products in the market place. Hence, the market study is relevant in identifying the market opportunities and the possibilities of the market creation. As a result, the market study is a substantial aspect in the work of the market feasibility studies. Provided that no market opportunities are realized, it is not advisable to abandon the feasibility studies because if there are market opportunities, they would continue tracking various market scenarios and doing further relevant investigations.
The technical study part of the feasibility studies is undertaken for the purposes of ideas security. The proposed idea could be both protected or not but the technical part of the feasibility study reviews the risks emerging from such securities. Correspondingly, a good and viable business idea would be of a sufficient security whereas bad securities would not be worth the investment. Thus, technical studies should realize high-standard securities with the limited funds that would be invested into the viable project with the prospects of the reasonable returns.
Managerial studies are as important as other parts of the feasibility study. To detail, they are significant to the success of the project, idea or business. If the feasibility studies find the managerial studies not viable, the feasibility should be dropped. The reason is that any project undertaken with inadequate or insufficient managerial skills is prone to failure. What is more, a majority of the parties involved in the project would be dismissed. For this reason, it is the responsibility of the management team to ensure that different processes are run and operated effectively in order to achieve the goals of the project.
The Socioeconomic study focuses on the probable impacts of the project on the lives of the locals and on the roles played by the people in shaping the business. Provided that the feasibility socioeconomic studies regard such influences to be harmful for the project, then it would be better to stop. However, if there are the opportunities of the mutual existence and the advantages for the locals as well as for the project, it would be appropriate to continue the project.
Financial studies as part of the feasibility studies help in determination of the cost of the project that has been found to be viable. Notably, the financial studies concentrate on the questions regarding the revenues and the total expenses involved in the project. Furthermore, various modes applied for decreasing the expenses and the best prices for the project completion are offered. The financial analysts are able to predict if the cost to be incurred would be tolerable. To explain, if the cost of the project is estimated to outcome the profit, the project would be stopped and vice versa.
In conclusion, the financial feasibility analysis is an essential tool in leading a successful and thriving business. Overall, it is used for the profound studying and reviewing of the organizational component of the business, its main advantages as well as drawbacks of its work. Importantly, the financial feasibility analysis is valuable in predicting the possible outcomes of the innovative business ideas and projects. It helps to prevent crisis and to assure a high profit with minimum expenses. The main difference of the financial feasibility analysis from the business plan is that the business plan is actually its integral part which defines all the necessary steps needed to implement the proposed business idea. Lastly, the financial feasibility analysis comprises such significant components as marketing study, technical study, managerial study, socioeconomic study, and financial study. Each of them has its own functions described above that constantly refine the financial feasibility analysis.