Financial Appraisal

Financial Appraisal
Meaning -
• Financial Appraisal is a method used to evaluate
the viability of a project by assessing the value of
net cash flows that result from its implementation.
• A financial appraisal is concerned with the financial
impact of the project on the finances of the
Sponsoring Agency. Financial analysis focuses on
cash flows as opposed to economic flows and in
particular considers sustainability and profitability.
 Financial Appraisal
Objectives -
• Financial analysis focuses on cash flows as opposed to
economic flows and in particular considers sustainability and
profitability
• Identifying and estimating financial cash flows
• Assessing financial suitability – sustainability occurs if the net
flow of cumulated generated cash flow is positive for all years
considered
• Calculating performance indicators (e.g. Net Present Value,
Internal Rate of Return)
• Assessing funding sources for the project
Types of Financial Appraisal

Financial Appraisal

Financial appraisal
An Exchequer cash
from perspective of
flow analysis
sponsoring agency
 Financial Appraisal
Challenges Benefits
• Technical Glitch • Cost benefits
• Legal Appraisal • Time Saving
• Environmental appraisal • Reduction of risk
 When to carry out Financial Appraisal

• Time Horizon
• Cash in/out flow
• Pattern Identification
• Sensitivity Analysis
• Reporting
 Steps Involved in a financial appraisal of a
project
• A forecast of demand
• Estimated of financial cost, capital & annual
maintenance/ recurring cost
• Estimation of benefits on basis of forecasted
future traffic
• Comparison of cost & benefit for assessing
viability
 Investment Criteria
• To investment efficiency & profitability of
investment in a project.
• Two categories of investment criteria used :
– Non – Discounting cash flow methods
– Discounting Cash Flows
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