![Page 1: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/1.jpg)
THREE KPIS EVERY
BUSINESS OWNER SHOULD KNOW
BEFORE MAKING
NEW INVESTMENT
S
![Page 2: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/2.jpg)
Business owners find it necessary to make capital investments to further the purpose of their business
![Page 3: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/3.jpg)
When to make
capital investmen
ts
![Page 4: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/4.jpg)
Capital investments are made when capacity needs to be increased or expenses can be decreased
![Page 5: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/5.jpg)
Make capital investments knowing your required rate of return
![Page 6: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/6.jpg)
Required rate of return
![Page 7: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/7.jpg)
You should go into an investment knowing how much you will like to get back in return
![Page 8: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/8.jpg)
Your required rate of return is normally tied to the opportunity cost of your money
![Page 9: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/9.jpg)
Capital investment decisions take into
consideration
![Page 10: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/10.jpg)
Fund availability: Are there excess funds to make the investment or will the business have to take a loan
![Page 11: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/11.jpg)
Risk: The risk involved in the investment should also be considered
![Page 12: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/12.jpg)
Capital Investment KPIs
![Page 13: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/13.jpg)
Cash payback period
![Page 14: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/14.jpg)
The cash payback period is the time period it will take to recover the cost of your capital investment
![Page 15: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/15.jpg)
COST OF CAPITAL INVESTMENT/ NET ANNUAL CASH FLOW
![Page 16: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/16.jpg)
It will take as 6.25 years to get back your original investment. This number is neither good or bad. It all depends on your investment requirements and other qualitative factors.
In general, the shorter the cash payback period, the more desirable the investment.
![Page 17: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/17.jpg)
Net present value
![Page 18: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/18.jpg)
The problem with the payback period, is that it does not take into consideration the time value of money
![Page 19: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/19.jpg)
Using the net present value method, cash flow is discounted to its present value. The capital investment is subtracted from the net present value to see if there is a positive or negative return. In general, an investment is accepted if the return is positive.
![Page 20: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/20.jpg)
Internal rate of return
![Page 21: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/21.jpg)
The internal rate of return is the point where your NPV (as discussed previously) is zero
![Page 22: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/22.jpg)
Using excel (formula =IRR(G9:G19)) we can determine the internal rate of return of the problem discussed above as follows
![Page 23: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/23.jpg)
Questions for
thoughts
![Page 24: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/24.jpg)
Do you know your investment return criteria?
![Page 25: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/25.jpg)
Do you know the opportunity cost of your money?
![Page 26: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/26.jpg)
Summary
![Page 27: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/27.jpg)
You must go into investments knowing what you hope to get from it and then using kpis to predict if these investments are likely to meet your criteria
![Page 28: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/28.jpg)
Payback period of must be greater than 50% of
the assets estimated useful life
Required rate of return of
20% based on opportunity cost of cash
![Page 29: Three kpis every business owner should know before making new investments](https://reader035.vdocument.in/reader035/viewer/2022070512/589a418d1a28ab8c588b64a9/html5/thumbnails/29.jpg)
Know moreTHREE KPIS
EVERY BUSINESS
OWNER SHOULD KNOW BEFORE MAKING NEW INVESTMENTS
www.mybusinesskpi.com/InvestmentKPIs.html