Financial Evaluation

Posted in Finance, Accounting and Economics Terms, Total Reads: 5394

Definition: Financial Evaluation

Financial evaluation is defined as the process of evaluating various projects, budgets, businesses and further finance-related subsidiaries to agree on their viability for investment. Financial evaluation or popularly known as financial analysis is used to examine whether a unit is steady, liquid, solvent, or profitably adequate to be invested in.

There are numerous tools and techniques to financially evaluate a company:-

  1. Evaluating the cost of the project needs to be undertaken
  2. Time value of Investment of money required for the project
  3. NPV (Net Present value) of the project- If we have to compare two independent projects we would select a project with NPV greater than zero, For a mutually exclusive projects the one with higher NPV will be a better option among the two.
  4. IRR
  5. Pay Back Period
  6. Risk Evaluation where analysis would be based on risks such as solvency, liquidity or interest and so on.

Apart from the given techniques of analyzing financial data another way is by calculating ratios from the given data and to compare them against those of industry standards or contemporary companies or against the company's own past result for a better outlook.

Hence, this concludes the definition of Financial Evaluation along with its overview.

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