Comparative analysis of the most important economic criteria for the company’s investment projects

Vladymyr Iankovyi
Doctor of Economics, Assistant Professor of Economics, Law and Business Management Department, Odessa National Economic University, Ukraine, e-mail: vladimir_ya@ukr.net, ORCID ID: https://orcid.org/0000-0001-7005-5291

Cite this article:

Iankovyi, V. (2021). Comparative analysis of the most important economic criteria for the company’s investment projects [Porivnialnyi analiz vazhlyvishikh ekonomichnykh kryteriiv investytsiinykh proiektiv kompanii], Socio-economic research bulletin; Vìsnik social’noekonomìčnih doslìdžen’, Odessa National Economic University, Odessa, No. 2 (77), pp. 125–141.

Abstract

The theoretical aspects of company’s investment management are discussed. The properties and characteristics of seven main economic criteria-indicators of investment projects, in particular, net present value, profitability index, simple and modified internal rate of return, simple and discounted payback period, efficiency coefficient are considered in detail. The aim of the study is a critical comparative analysis of the most important economic criteria of the company’s investment projects, such as internal rate of return (IRR) and modified internal rate of return (MIRR), their advantages and disadvantages, as well as further development of objective theoretical ideas about properties and relationships criteria for future investments, in particular, between the profitability index (PI) and the modified internal rate of return (MIRR).The economic and mathematical properties of the function describing the dependence of the net present value on the value of the discount rate are studied. The attention of project analysis specialists and top managers of companies is drawn to the shortcomings of the internal rate of return, which, in certain cases, due to the peculiarities of the calculation carries a potential threat of artificially overestimating the efficiency of an investment project. This fact is a significant basis for a complete rejection of using this indicator as a quantitative characteristic of the effectiveness of future production and financial projects. It is proposed to use exclusively the criterion «modified internal rate of return» as an indicator of efficiency of an investment project, which is completely objective, universal and can serve as a basis for calculating the profitability index. A formula of the functional interrelation between the value of the modified internal rate of return and the profitability index of the future production and financial projects of the company is derived.

Keywords

investment project; economic criterion; efficiency assessment; investment portfolio.

JEL classification: G310; O220; DOI: https://doi.org/10.33987/vsed.2(77).2021.125–141

UD classification: 338.22.021.4

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

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