Financing and Marketing Management

Unit 4- Fishery Financial Management

4.4. Project Evaluation or Capital Budgeting or Investment evaluation
Definition:
Project evaluation is an integral part of the planning process. At the stage of preparation of projects, it implies examining the relative profitability of a project vis-à-vis other projects to enable planners in the choice of priority projects.
Capital budgeting: The process in which a business determines whether projects such as building a new plant or investing in a long term venture are worth pursuing. Oftentimes, a prospective project’s lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. It is also known as “investment appraisal”.
Why capital budgeting?

• Long term impact as capital is fixed on durable assets for long time
• Investment in fisheries assets or equipment is on specialized assets or equipment. Once, their utility is over, it is difficult to convert this investment on some other or it will be costly to convert specialized investment to liquid assets.
• Relatively huge investment have to be made on some of the fishery equipment.
• Investment mostly on illiquid assets. That is once capital is committed on these purposes; we can convert them into cash or into some other purpose.

Because of these reasons, we have to evaluate the proposed investment in terms of technical feasibility and economic viability before limited resources are committed on a particular equipment or asset. Capital budgeting will be useful to make such decisions as it allows the investor or decision maker to project proposed costs and returns from an investment opportunity or equipment into the future and based on the cash flows investment decisions are made.