Topic 5: Initial investment, working capital and financing

Initial investment:

It is called the initial investment to the amount of money that is necessary to

invest to start up a business project.

Generally when a business is projected, an investment must first be made,

with which will be obtained those resources necessary to keep the business
in operation.

What to consider when making the initial investment?

 Borrowing capacity: One of the most important things to consider

before getting a debt. If we apply for financing, before we ask for it we
have to calculate how much we can pay, that is, what our
indebtedness is. It all depends on the type of business.

 Differentiate between what you need to buy and rent: In some cases,
the company does not need to buy certain items and less at the start
of the activity. For example instead of buying a local, you can rent one
at the beginning of the business

Working capital
The most basic definition of working capital considers it as those
resources that the company requires in order to operate. In this sense,
working capital is what we commonly known as current assets. (Cash,
short-term investments, portfolio and inventories)

It is the investment of money made by the company or business to

carry out its economic and financial management in the short term,
meaning short-term periods of time not exceeding one year.
Calculates the working capital: This calculation is only a basic
subtraction, subtract the total current liabilities from total current
assets

For example, imagine that a company had current assets of $ 50,000

and current liabilities of $ 24,000. This company would have a working
capital of $ 26,000. The company could pay all of its current liabilities
on current assets and would also have the cash to other purposes. The
company could use the effect to finance long-term debt operations or
payments. It could also distribute the money to shareholders.

FINANCIAL EVALUATION OF PROJECTS

The evaluation can be considered as the theoretical exercise by which
An attempt is made to identify, assess and compare the costs and
benefits associated with certain project alternatives.

WHAT IS EVALUATION?
The identification of costs and benefits results from
Generated by a project with the objectives that are intended to be
achieved with its execution and commissioning.

Types of evaluation: Financial, economic and social.

The financial assessment varies according to the entity concerned. You
can perform the

Evaluation of a single project, or alternative, from several points of

view:
1. Point of view of the beneficiaries.
2. Point of view of the executing entity (s).
3. Point of view of donors.
4. Government's point of view.
5. View of the economy or society
The financial evaluation information must fulfill three functions:
1. Determine how much all costs can be covered in a timely manner, in
a way that contributes to the design of the financing plan.
2. Measures the return on investment.
3. Generates the necessary information to make a comparison of the
project with other alternatives or with other investment opportunities.

Life cycle of a project

Identification

Cycle of
operation a Formulation

proyect

Execution
 Financial statement
The financial statements, also referred to as accounting statements,
financial reports or annual accounts, are reports that are used by the
institutions to raise awareness of the economic and financial situation and
the changes they experience at a given date or period. This information is
useful for administration, managers, regulators and other stakeholders such
as shareholders, creditors or owners.

Most of these reports constitute the final product of accounting and are
produced in accordance with generally accepted accounting principles,
accounting standards or financial reporting standards. Accounting is carried
out by public accountants who, in most countries of the world, must
register in public or private control agencies in order to practice the
profession.

Financial states compulsory depend on each country being components

most common the following:

 State of situation heritage (also called state of Financial Situation,

Balance general or balance of Situation)
 State of results (also called state of Loss and Profit or loss account and
winnings)
 State of net heritage evolution (also called state of changes in Net
heritage)
 State of Memory
 Cash flow
1. Compressibility: information must be easy understanding for all users,
however also must add notes that allow understanding, complexes themes
for the taking of decisions.

2. Small clearings: Relevance and information will be relative importance to

the senator, when this information and be omitted by mistake, can damage
and influence in decisions taken.

3. Confidence: information must be free to mistakes materials, must be

neutral and prudent, so you can be useful and necessary transmitted
confidence to users.

4. of Comparing them: this information is must present following the rules

and political rest, so that allow easy comparison with previous periods to
meet the trend, and also allow the comparison with other companies.

5. Improvement: must meet the needs of users.