What is the best investment decision
Investment calculation and valuation methods
Products, business ideas or service offers are economical if they lead to a profit or if they can save costs. Numerous methods have been developed in business management to determine and calculate profitability. They are assigned to the static and dynamic investment calculation. This enables you to assess whether you are proceeding economically sensible and successful when purchasing a product, investing your capital or starting a company. In this manual chapter, we introduce some widely used and easy-to-use methods and show you how to use them with the help of the respective templates.
With the break-even analysis, you determine the conditions and possibilities to achieve a profit at all with a (new) product. You know your costs and the sales price and calculate the necessary sales (sales volume). With the break-even analysis Excel template, you can vary sales, costs and prices and look at different scenarios. Break-even, the profit threshold, is immediately visible in a diagram.
When comparing multiple products to see which is the most cost-effective, do a cost comparison calculation. With the Excel template cost comparison for alternative solutions you can compile all relevant costs and determine the cheapest product. With the Excel template Total Cost of Ownership, you not only consider acquisition costs, but all costs during the period of use.
In the profit comparison calculation, you also include the different services of the products. It makes sense when it comes to the evaluation of production processes, service offers or business models. Not only costs, but also revenues, output and transfer or sales prices are included in the evaluation. In this manual chapter you will find three Excel templates as variants for the profit comparison calculation.
If you have an investment in a company or a business model and have expenses and income over a longer period of time, then you should take interest effects into account. You can do this with the net present value method, with which you calculate the net present value, cash value or net present value from incoming and outgoing payments in the future. With the Excel template net present value method, all future cash flows are discounted to the present. The success of an investment depends largely on the discount rate. You can use the internal rate of return method Excel template to determine the interest rate that leads to a net present value of zero.
With the amortization calculation, the risk of an investment decision can be limited. Because you check an investment in terms of how quickly the invested capital is earned back as cash flow. A short amortization period simply means: the uncertainties in the distant future have no influence, and at least you get the capital back. With the Excel template for the amortization calculation, you can calculate when the investment will be amortized on the basis of the investment and the cash flows during the period of use. When making an investment decision, however, you should use other methods in order to be able to assess opportunities, profits and profitability.
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