Project Finance - Profitability Assessment REYST Course

1. Project Finance - Profitability AssessmentREYST Course Goal: To build up knowledge to so that participants will be able to assess if a given project in a real life industry will be profitable, i.e. economically sustainable, or not Course Overview

2. Profitability AssessmentCourse Overview • 1. Profitability Theory and Measures • 2. Investment Analysis • 3. Operations Planning • 4. Business Plans • 5. Balance Sheet and Financial Ratios • 6. Cash Flow Analysis and Profitability • 7. Sensitivity Analysis • 8. Real Life Case Assignment Course Overview

3. Course Motto: Plan before act! Course Overview

4. 1. Profitability Theory and Measures, objectives • This optional module is a classical short-course in standard Economic Analysis. After this part the participants should understand concepts like Net Present Value and Internal Rate of Return and be able to apply them to measure profitability of given cash flow series. This module can be skipped by those who have an economics background, like bankers and investors Course Overview

5. 1. Profitability Theory and Measures, content • Cost Concepts (variable, fixed, sunk, opportunity, ...) • The Concept of Interest and Value of Time • Profitability Measures: PBP, NPV, IRR, B/C Ratio • Comparison of investment alternatives Course Overview

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7. Try to see the big picture! Course Overview

8. 2. Investment analysis, objectives • After this module the participants are able to estimate the cost of initial investments, including contingencies and working capital requirement, and set up project financing with equity and loans. Also, they will learn how to calculate repayments and interests of loans. Depreciation will be addressed and annuity of capital costs will be calculated. Course Overview

9. 2. Investment analysis, content • Estimating Investment Costs • Working Capital Requirement • Project Financing, Equity and Loans • Sources of Financing (where and how to attract funding) • Calculating loans • Depreciation Course Overview

10. Every small link is important! Course Overview

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13. Are all expenses necessary? Course Overview

14. 3. Operations Planning, objectives • Here the participants are trained to plan operations over a planning horizon of 5-10 years, i.e. estimate sales and prices of products, and do a detailed breakdown of all operating expenses. A case study will be used here as an example. Course Overview

15. 3. Operations Planning, content • Revenue Estimates, products and prices • Variable Operating Costs • Fixed Operating Costs • Specific for the Case Study Course Overview

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17. Using models is like using glasses to see things better! Course Overview

18. 4. Business plan, objectives • To train participants in setting up a simple business plan including a planned operations statement based on the operations planning, and including calculations of taxes and duties. In this module, the participants will do a draft of business plan for the case study Course Overview

19. 4. Business plan, content • Operating Statement Framework • Income Tax Calculation • Dividend Payments • Writing a Business Plan Report Course Overview

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21. We have built a great model! Course Overview

22. 5. Balance sheet, objectives • This module is not absolutely necessary for making profitability assessments, however it gives the participants valuable insight into how operating statements, cash flows and banance sheets are linked together. Furthermore, it is the basis for calculating financial ratios, like liquid current ratio etc Course Overview

23. 5. Balance sheet, content • Assets, Current and Fixed • Current Liabilities (Short Term Debts) • Long Term Debt • Capital, Equity & Profit & Loss Balance • Financial Ratios (Profit / Capital Ratios, Net and Liquid Current Ratios, Capital / Equity Ratio, Capital / Debt and Capital Course Overview

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25. Sure your model is debugged? Course Overview

26. 6. Cash flow Analysis, objectives • To learn how to build up cash flow plans on the basis of operating statements and how to calculate profitability. This module together with modules 2-4, provides the basis for profitability assessment. Profitability of the case study will be calculated. Course Overview

27. 6. Cash flow Analysis, content • Difference between Cash Flow and Operating Statement • Cash Flow from Operations • Source and Allocation of Funds (optional) • Critical Cash Flow Ratios • Profitability Measures (NPV, IRR) • Graphical Representation Course Overview

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32. Computer models are powerful! Course Overview

33. 7. Sensitivity analysis, objectives • To learn how to analyse uncertainty factors and their impact on project outcome. After this module the participants will be able to do risk assessment in a simple way with sensitivity calculations and scenario analysis, and in a more advanced way with Monte Carlo Simulations Course Overview

34. 7. Sensitivity analysis, content • Impact Analysis • One uncertain factor changed at the time • Scenario Analysis • Many uncertain factors changed at the time • Monte Carlo Simulation • Random number generators • Probability distributions • Simulation tools (@Risk or Crystal Ball) Course Overview

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38. Pessimistic scenarios are more common than optimistic! Course Overview

39. 8. Real life exercise assignment, objectives • The modular Excel model that was developed by the participants in parts 2-6 will now be used to evaluate the profitability of a real life project preferably selected by the participants themselves. This is considered very important in order to ensure that what was learned will stay Course Overview

40. 8. Real life exercise assignment, content • Data Collection, Assumptions and Estimations • Adapting the Profitability Model to the Assignment Case • Analysis of Results • Other views and considerations than economical • Final Report Course Overview

41. Remember, there is more to life than numbers! Course Overview

42. Course Form • Hands-on work in Excel gradually building up a case study business plan and a profitability model • The course will end with a report describing a real life case assignment • Typical time span 3-4 days Course Overview

43. Form of Assignment work • Assignment project work either individually or in small groups of 3-4 participants. • The groups work independently although the teachers will assist the groups as needed Course Overview

44. Analysis of Results • Graphical presentation of results • Sensitivity Analysis • Scenario Analysis • Simulations • Group discussion of results and sensitivity analysis Course Overview

45. Final Report • Writing final report: • Background of the proposed project • Main assumptions and data • Main results and findings • Sensitivity analysis and scenarios • Discussion and conclusion • Appendices: Tables etc • Also group presentations Course Overview

46. Have we achieved anything? Course Overview