Formulation and creation of projects

MEMBERS

Investment and implementation of a Project

Project investments are the expenditures made over a certain period of time to
acquire things necessary to start a business or project. This makes it possible to create
a productive unit that will eventually generate profits. Investing in projects means
using part of the available money to buy things that will help the business grow.

When we talk about project investments, it refers to putting planned tasks into
practice after evaluating the costs and benefits. For example, if the shareholders of a
company want to invest money in something, studies (called investment projects) are
first carried out to justify the expenditure and see how profitable it will be.

In short, to invest in projects, whether in the public or private sector, is to allocate

resources (both money and tangible things) to start up economic activities. This is done
in two stages: the initial investment in necessary things and the money to operate
after the project has started.

Investment Structure
The investment structure is like the detailed and organized outline that summarizes all
the expenses necessary to carry out a project. It functions as a map indicating at what
point these planned expenditures will be incurred.

This structure is broken down into two main parts:

Fixed Assets:
Tangible: Includes all physical things to be acquired, such as equipment, infrastructure,
land, among others.
Intangibles: Refers to investments in non-physical items, such as copyrights, patents,
specialized software, among others.

Contributions to Working Capital:

This category encompasses the sum total of all investments required to put the project
into operation.
In essence, this outline provides a detailed picture of where the money will be
invested, when these investments will be made and how they will be distributed
among the permanent assets and resources needed to make the project operational. It
is a strategic guide that helps to visualize and plan the financial flow necessary for
project execution.

Fixed investments
Fixed investment is like putting money and resources into physical things or services
needed for a project, but they are not spent continuously, only when they are acquired
or transferred to others. These resources, once obtained, become an important part of
the project, as assets, but over time they may wear out, become obsolete or be
liquidated at the end.

The elements of this investment are classified in different ways, but they are always
organized in a scheme that shows all the parts of the fixed investment.

Long-lived assets, such as machinery, buildings, furniture, vehicles and more,

depreciate (lose value over time) over their useful lives, except for land, which does
not lose value. Resources such as mineral deposits have a particular depreciation
called depletion, as they are gradually depleted by exploitation.

Investment calendar:
 The investment calendar does not always occur in a single month or year. Most likely,
the investment will last for several periods.

REPLACEMENT INVESTMENT

One of the most recurrent investments is the so-called replacement investment.

These are investments that must be made to replace an asset that has reached the end
of its useful life.
The emergence of an innovation that brings high added value.
Replicating the competition
To get ahead of the competition
Need to adapt the product to new regulations, etc.

vestment Phases
Investment decisions are not unique. Continually, public and private actors make
decisions that shape investments.
The four phases of the investment cycle are:
1.Strategic Planning
2.Design
3. Implementation and Follow-up/monitoring
4. Evaluation and Capitalization
 PRE-START-UP INVESTMENTS:

Pre-start-up investments refer to the capital expenditures and outlays that a company
makes prior to commencing business operations or launching a new project.
They can be grouped into three types:
fixed assets, nominal assets and working capital.

FIXED ASSETS:
Fixed assets, also known as fixed assets or capital assets, are long-term resources that
a company owns and uses in its operations to generate income. These assets have an
extended useful life and are not intended for immediate sale.
Fixed assets are important because they represent the essential infrastructure and
resources necessary for a company to operate and generate income over time. These
assets are recorded on the company's balance sheet and are shown at their original
cost, net of any accumulated depreciation or amortization.

EXAMPLES:
property
plant
land
machinery
furniture
transport equipment
NOMINAL ASSETS:
are those disbursements made in intangible assets necessary for the operation and
start-up of the project, such as: patents, licenses, training expenses, organization and
contingencies.
Patents and licenses expenses are those rights that allow the operation of the project,
such as municipal patents, general licenses or notarial authorizations; as well as those
rights that allow the use of a trademark, formula or production process.
In addition, it should be considered that nominal investments are susceptible to
amortization, which will affect the projected cash flow.
WORKING CAPITAL INVESTMENT:

Working capital investment is an important part of pre-start-up investments and refers

to the financial resources that a company allocates to maintain and operate its day-to-
day activities. This type of investment is designed to cover operating costs and ensure
that the company can carry out its operations effectively.
Investing in working capital, therefore, involves ensuring that the company has
sufficient resources to finance its day-to-day operations and meet its short-term
commitments.

EXAMPLES:
Inventory
Cash or cash equivalents
Operating expenses
METHODS FOR CALCULATING THE AMOUNT OF INVESTMENT IN WORKING CAPITAL:

THE GROSS WORKING CAPITAL METHOD: This is a way of calculating the working
capital investment for a company. Gross working capital represents the amount of
financial resources a company needs to finance its day-to-day operations, ensuring
that it has sufficient current assets (such as cash, accounts receivable and inventory) to
cover its current liabilities (such as accounts payable) at any given time.
The general formula for calculating Gross Working Capital is as follows:
Gross Working Capital=Current Assets-Current Liabilities.
Where:
Current Assets: Include cash, accounts receivable, inventory and other assets that are
expected to be converted to cash or used in the short term.
Current Liabilities: Include accounts payable, short-term debt, and other obligations to
be paid in the short term.
The interpretation of the result is key:
A positive Gross Working Capital indicates that the company has more current assets
than current liabilities, suggesting a strong financial position to meet its short-term
obligations.

The Gross Working Capital method provides an overview of a company's short-term

financial health and is useful in assessing the company's ability to meet its immediate
financial commitments. However, it is important to use this method in conjunction
with other approaches and to consider the specific nature of the company's industry
and operations to get a complete picture of its financial needs.

RECOVERY PERIOD METHOD: is used to assess the time it takes a company to recover
its initial investment in a project or asset through the cash flows generated by that
project.
The payback period is used to evaluate the time it takes to recover the investment in
working capital. There is a generalized approach here:

Calculate Initial Working Capital Investment: Add up the current assets you will need to
start operations, such as inventory, accounts receivable and cash needed to cover
initial operating expenses.
Calculate Net Cash Revenues by Period: Calculate the net cash flows generated by the
company's operations in each period. This will include sales revenue and any other
cash flows generated by operating activities.
Determine Payback Period: Calculate how long it takes to recover the initial investment
in working capital. This is done by dividing the initial investment by the net cash flows
generated in each period. Add the periods together until the initial investment has
been recovered.

Payback Period

MAXIMUM ACCUMULATED DEFICIT METHOD:

The calculation of the investment in working capital by this method involves
calculating for
The main criticism of this model is that it penalizes the project too much by
considering the project as the equivalent of the maximum accumulated deficit.
The main criticism of this model is that it penalizes the project too much by
considering
EFFECT OF SEASONALITY ON WORKING CAPITAL INVESTMENT:

If the project considers increases in the level of operation, additions to working capital
may be required. The calculation of the amount of the necessary investment in
working capital for an investment project, with constant monthly sales during the year
and with a seasonal receipt of raw materials, requires defining the optimal production
period. The variables that favor the choice of a longer production period, although in
all cases this should be the result of an economic analysis, are the lower investment in
infrastructure for finished product warehouses and equipment, given the lower
monthly production level, the lower number of production personnel or fewer shifts,
the less idle time of the production equipment, etc. In favor of a shorter period are,
among other factors, the lower loss in raw material warehouses and the lower need
for investment in infrastructure for raw materials resulting from a higher monthly
consumption during the period of reception of these inputs. As the investment in raw
material warehouses is linearly dependent on their capacity, the alternative of a longer
production period becomes more negative.
Considering that the sale of the finished product will take place regularly during all
months of the year, the capacity of the raw material storage warehouses will be
increasing as the period of operations extends through the year, while the capacity of
the finished product warehouses will be decreasing in the same case. The
systematization of market, technical and organizational information for the
determination of the project investments, in order to quantify the investment in the
assets required by the project for the transformation of inputs, and the determination
of the amount of initial working capital required for the normal operation of the
project after its implementation.
CASH FLOWS:
Also referred to as cash flows, cash or simply cash. The cash flows of a project
constitute a statement that summarizes the cash inflows and outflows over the life of
the project, thus making it possible to determine the profitability of the investment.
The reliability of the figures or data contained in an expected cash flow will be decisive
for the validity of the results, since the various project evaluation criteria or methods
are applied on this basis (expected cash flows).

Types of cash flows:

Operating cash flow.

Capital cash flow.
Economic cash flow.
Financial cash flow.

Formats of the various cash flows:

These should be appropriate to the characteristics and nature of the investment
project to be evaluated, adding or eliminating items as appropriate, so it is important
to point out that it is only referential.
CONCEPT: Working capital is basically the financial resources that a company needs to
continue operating and carrying out its activities.
WHY IS WORKING CAPITAL IMPORTANT FOR A COMPANY?
- working capital is the amount of financial resources that a company needs to keep a
business running.
- It is important when the company's management wants to make an investment that
will generate returns in the future.
Current assets (CA) refer to cash on hand, financial investments, accounts payable and
receivable, stocks, expenses, raw materials, securities, bank deposits, bank
transactions and prepaid expenses. Therefore, they are the assets and rights that can
be converted into cash in the short term.

Current liabilities (CL) are all obligations that should normally be paid within one year,
such as bank loans, debts to suppliers, accruals and certain accounts payable.
EXAMPLE we will create a hypothetical situation for a service provider company that
will determine the working capital needed for a specific year. From this, the following
monthly expense amounts were calculated:

electricity: S/ 150.00;
rent: S/ 500.00;
water, telephone and internet: S/ 250.00;
salaries: S/ 15,000.00;
office supplies and cleaning: S/ 300.00;
tax provision: S/ 800.00;
expenses with continuous services: S/ 1,500.00.
Therefore, the amount of working capital that this company will need to remain active
is S/18,500.00 per month. Current assets (CA)
Monthly loan installments S/2,500.00
Monthly machine purchase installments S/1,500.00 will be current liabilities (PC).
Working capital formula:
CT = AC - PC
CT= 18,500 - 4000
TC= 14,500

TYPES OF WORKING CAPITAL

1.- Net working capital (NWC): Known as net working capital, this concept is used as an
indicator to manage and know all the company's payment capabilities, which allows
the management of relationships with suppliers and customers.
CTN= AC - PC
Own working capital (EWC): This is defined as the variable that indicates the amount of
the company's own resources.
Although it seems a little more complex, the company's own working capital can be
easily calculated with this formula:
CTP = AC - PC- PF
PF or Long-Term Liabilities are the debts your company has that must be paid off after
the next financial year,
WORKING CAPITAL IS AN IMPORTANT INDICATOR OF YOUR RESOURCES. WITH IT, YOU
WILL KNOW THE AMOUNT NECESSARY FOR YOUR COMPANY TO OPERATE AND GROW
IN A HEALTHY AND LINEAR WAY.