Project Finance And Economics
Expert-defined terms from the Graduate Certificate in Project Management for Food Processing (United Kingdom) course at London School of Planning and Management. Free to read, free to share, paired with a professional course.
Accounting Rate of Return (ARR) is a method used to evaluate the profitability o… #
Accounting Rate of Return (ARR) is a method used to evaluate the profitability of a project, it is calculated by dividing the average annual profit by the average total investment, related terms include internal rate of return and net present value, this method is often used in project finance and economics to determine whether a project is viable, for example, in the food processing industry, a company may use ARR to evaluate the profitability of investing in a new production line.
Asset #
Based Financing is a type of financing where the lender uses the assets of the project as collateral, related terms include project finance and secured loan, this type of financing is often used in large-scale projects, such as the construction of a new food processing plant, where the lender can use the plant and its equipment as collateral.
Break #
Even Analysis is a method used to determine the point at which a project will become profitable, it is calculated by dividing the fixed costs by the contribution margin, related terms include variable costs and fixed costs, this method is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use break-even analysis to determine whether a new product will be profitable.
Capital Budgeting is the process of evaluating and selecting projects that requi… #
Capital Budgeting is the process of evaluating and selecting projects that require significant investments, related terms include capital expenditure and investment appraisal, this process is critical in project finance and economics as it helps companies to allocate their resources effectively, for example, a food processing company may use capital budgeting to evaluate whether to invest in a new production line or to expand an existing one.
Cost #
Benefit Analysis is a method used to evaluate the viability of a project by comparing its costs and benefits, related terms include costs and benefits, this method is often used in project finance and economics to determine whether a project is worthwhile, for example, a food processing company may use cost-benefit analysis to evaluate whether to invest in a new production line, by comparing the costs of the investment with the potential benefits, such as increased production and revenue.
Debt Financing is a type of financing where the borrower promises to repay the l… #
Debt Financing is a type of financing where the borrower promises to repay the lender with interest, related terms include loan and credit, debt financing is often used in project finance and economics to raise funds for a project, for example, a food processing company may borrow money from a bank to invest in a new production line.
Discounted Cash Flow (DCF) is a method used to evaluate the viability of a proje… #
Discounted Cash Flow (DCF) is a method used to evaluate the viability of a project by calculating the present value of its future cash flows, related terms include present value and discount rate, this method is often used in project finance and economics to determine whether a project is worthwhile, for example, a food processing company may use DCF to evaluate whether to invest in a new production line, by calculating the present value of the future cash flows from the investment.
Economic Value Added (EVA) is a method used to evaluate the profitability of a p… #
Economic Value Added (EVA) is a method used to evaluate the profitability of a project, it is calculated by subtracting the cost of capital from the net operating profit after taxes, related terms include net operating profit and cost of capital, this method is often used in project finance and economics to determine whether a project is creating value for the company, for example, a food processing company may use EVA to evaluate the profitability of a new production line.
Feasibility Study is a study used to evaluate the viability of a project, it inc… #
Feasibility Study is a study used to evaluate the viability of a project, it includes an analysis of the technical, financial, and economic aspects of the project, related terms include project appraisal and project evaluation, this study is critical in project finance and economics as it helps companies to determine whether a project is worthwhile, for example, a food processing company may conduct a feasibility study to evaluate whether to invest in a new production line.
Financial Modeling is the process of creating a mathematical model to simulate t… #
Financial Modeling is the process of creating a mathematical model to simulate the financial performance of a project, related terms include forecasting and simulation, financial modeling is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use financial modeling to simulate the financial performance of a new production line.
Financial Ratio is a ratio used to evaluate the financial performance of a proje… #
Financial Ratio is a ratio used to evaluate the financial performance of a project, related terms include liquidity ratio and profitability ratio, financial ratios are often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use financial ratios to evaluate the liquidity and profitability of a new production line.
Fixed Costs are costs that remain the same even if the level of production chang… #
Fixed Costs are costs that remain the same even if the level of production changes, related terms include variable costs and semi-variable costs, fixed costs are critical in project finance and economics as they affect the viability of a project, for example, a food processing company may have fixed costs such as rent and salaries, which remain the same even if the level of production changes.
Hurdle Rate is the minimum rate of return required for a project to be viable, r… #
Hurdle Rate is the minimum rate of return required for a project to be viable, related terms include cost of capital and discount rate, the hurdle rate is critical in project finance and economics as it determines the viability of a project, for example, a food processing company may have a hurdle rate of 10%, which means that any project with a rate of return below 10% will not be viable.
Internal Rate of Return (IRR) is a method used to evaluate the viability of a pr… #
Internal Rate of Return (IRR) is a method used to evaluate the viability of a project, it is calculated by finding the discount rate that makes the net present value of the project equal to zero, related terms include net present value and discount rate, this method is often used in project finance and economics to determine whether a project is worthwhile, for example, a food processing company may use IRR to evaluate whether to invest in a new production line.
Investment Appraisal is the process of evaluating and selecting projects that re… #
Investment Appraisal is the process of evaluating and selecting projects that require significant investments, related terms include capital budgeting and project evaluation, this process is critical in project finance and economics as it helps companies to allocate their resources effectively, for example, a food processing company may use investment appraisal to evaluate whether to invest in a new production line or to expand an existing one.
Net Present Value (NPV) is a method used to evaluate the viability of a project,… #
Net Present Value (NPV) is a method used to evaluate the viability of a project, it is calculated by subtracting the present value of the costs from the present value of the benefits, related terms include present value and discount rate, this method is often used in project finance and economics to determine whether a project is worthwhile, for example, a food processing company may use NPV to evaluate whether to invest in a new production line.
Payback Period is the time it takes for a project to generate enough cash to pay… #
Payback Period is the time it takes for a project to generate enough cash to pay back the initial investment, related terms include cash flow and investment, the payback period is critical in project finance and economics as it determines the viability of a project, for example, a food processing company may have a payback period of 5 years for a new production line, which means that it will take 5 years for the project to generate enough cash to pay back the initial investment.
Project Finance is a type of financing where the lender uses the cash flows of t… #
Project Finance is a type of financing where the lender uses the cash flows of the project as collateral, related terms include asset-based financing and secured loan, project finance is often used in large-scale projects, such as the construction of a new food processing plant, where the lender can use the cash flows of the project as collateral.
Return on Investment (ROI) is a method used to evaluate the profitability of a p… #
Return on Investment (ROI) is a method used to evaluate the profitability of a project, it is calculated by dividing the net profit by the investment, related terms include net profit and investment, this method is often used in project finance and economics to determine whether a project is worthwhile, for example, a food processing company may use ROI to evaluate the profitability of a new production line.
Risk Management is the process of identifying, assessing, and mitigating risks a… #
Risk Management is the process of identifying, assessing, and mitigating risks associated with a project, related terms include risk assessment and risk mitigation, risk management is critical in project finance and economics as it helps companies to manage risks and ensure the viability of a project, for example, a food processing company may use risk management to identify and mitigate risks such as changes in market demand or raw material prices.
Sensitivity Analysis is a method used to evaluate the impact of changes in assum… #
Sensitivity Analysis is a method used to evaluate the impact of changes in assumptions on the viability of a project, related terms include scenario analysis and what-if analysis, sensitivity analysis is often used in project finance and economics to evaluate the robustness of a project, for example, a food processing company may use sensitivity analysis to evaluate the impact of changes in market demand or raw material prices on the viability of a new production line.
Time Value of Money is the concept that money received today is worth more than… #
Time Value of Money is the concept that money received today is worth more than the same amount received in the future, related terms include present value and future value, the time value of money is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to evaluate the present value of future cash flows from a new production line to determine whether the project is worthwhile.
Weighted Average Cost of Capital (WACC) is a method used to calculate the cost o… #
Weighted Average Cost of Capital (WACC) is a method used to calculate the cost of capital for a project, it is calculated by weighting the cost of debt and equity by their proportions, related terms include cost of debt and cost of equity, WACC is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use WACC to calculate the cost of capital for a new production line.
Zero #
Based Budgeting is a method of budgeting where all expenses must be justified and approved, related terms include budgeting and cost control, zero-based budgeting is often used in project finance and economics to control costs and ensure the viability of a project, for example, a food processing company may use zero-based budgeting to justify and approve all expenses for a new production line.
Accounting Equation is a mathematical equation that represents the relationship… #
Accounting Equation is a mathematical equation that represents the relationship between assets, liabilities, and equity, related terms include assets and liabilities, the accounting equation is critical in project finance and economics as it helps companies to evaluate the financial performance of a project, for example, a food processing company may use the accounting equation to evaluate the financial performance of a new production line.
Activity #
Based Costing is a method of costing that assigns costs to activities, related terms include cost accounting and activity-based management, activity-based costing is often used in project finance and economics to evaluate the costs of a project, for example, a food processing company may use activity-based costing to assign costs to activities such as production and maintenance.
Amortization is the process of gradually writing off the cost of an asset over i… #
Amortization is the process of gradually writing off the cost of an asset over its useful life, related terms include depreciation and intangible assets, amortization is critical in project finance and economics as it affects the financial performance of a project, for example, a food processing company may have to amortize the cost of a new production line over its useful life.
Arbitrage is the practice of taking advantage of price differences between two o… #
Arbitrage is the practice of taking advantage of price differences between two or more markets, related terms include market inefficiency and risk-free profit, arbitrage is critical in project finance and economics as it can affect the viability of a project, for example, a food processing company may use arbitrage to take advantage of price differences between different markets.
Break #
Even Point is the point at which the total revenue equals the total cost, related terms include break-even analysis and contribution margin, the break-even point is critical in project finance and economics as it determines the viability of a project, for example, a food processing company may have to calculate the break-even point for a new production line to determine whether it is viable.
Business Case is a document that outlines the rationale and justification for a… #
Business Case is a document that outlines the rationale and justification for a project, related terms include project proposal and feasibility study, the business case is critical in project finance and economics as it helps companies to evaluate the viability of a project, for example, a food processing company may have to prepare a business case for a new production line to justify the investment.
Capital Expenditure is an expense incurred to acquire or improve a long #
term asset, related terms include capital budgeting and investment appraisal, capital expenditure is often used in project finance and economics to evaluate the costs of a project, for example, a food processing company may have to incur capital expenditure to acquire a new production line.
Capital Structure is the mix of debt and equity used to finance a project, relat… #
Capital Structure is the mix of debt and equity used to finance a project, related terms include debt financing and equity financing, the capital structure is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to determine the optimal capital structure for a new production line.
Cash Conversion Cycle is the time it takes for a company to convert its inventor… #
Cash Conversion Cycle is the time it takes for a company to convert its inventory into cash, related terms include inventory management and cash flow, the cash conversion cycle is often used in project finance and economics to evaluate the cash flows of a project, for example, a food processing company may have to manage its inventory to minimize the cash conversion cycle.
Commercial Bank is a financial institution that provides loans and other financi… #
Commercial Bank is a financial institution that provides loans and other financial services to companies, related terms include bank loan and credit facility, commercial banks are often used in project finance and economics to raise funds for a project, for example, a food processing company may borrow money from a commercial bank to finance a new production line.
Compound Interest is the interest earned on both the principal amount and any ac… #
Compound Interest is the interest earned on both the principal amount and any accrued interest, related terms include interest rate and time value of money, compound interest is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to calculate the compound interest on a loan to determine the total cost of borrowing.
Contribution Margin is the difference between the selling price and the variable… #
Contribution Margin is the difference between the selling price and the variable cost of a product, related terms include variable cost and fixed cost, the contribution margin is often used in project finance and economics to evaluate the profitability of a project, for example, a food processing company may have to calculate the contribution margin for a new product to determine its profitability.
Cost Accounting is the process of assigning costs to products or activities, rel… #
Cost Accounting is the process of assigning costs to products or activities, related terms include cost accounting system and activity-based costing, cost accounting is critical in project finance and economics as it helps companies to evaluate the costs of a project, for example, a food processing company may use cost accounting to assign costs to activities such as production and maintenance.
Cost #
Benefit Ratio is a ratio used to evaluate the viability of a project, it is calculated by dividing the benefits by the costs, related terms include cost-benefit analysis and benefit-cost ratio, the cost-benefit ratio is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use the cost-benefit ratio to evaluate whether to invest in a new production line.
Credit Facility is a line of credit provided by a bank or other financial instit… #
Credit Facility is a line of credit provided by a bank or other financial institution, related terms include bank loan and credit limit, credit facilities are often used in project finance and economics to raise funds for a project, for example, a food processing company may have a credit facility to finance its working capital requirements.
Discount Rate is the rate used to calculate the present value of future cash flo… #
Discount Rate is the rate used to calculate the present value of future cash flows, related terms include present value and time value of money, the discount rate is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to calculate the present value of future cash flows from a new production line using a discount rate.
Economic Feasibility Study is a study used to evaluate the economic viability of… #
Economic Feasibility Study is a study used to evaluate the economic viability of a project, related terms include feasibility study and project appraisal, the economic feasibility study is critical in project finance and economics as it helps companies to determine whether a project is worthwhile, for example, a food processing company may conduct an economic feasibility study to evaluate whether to invest in a new production line.
Efficient Market Hypothesis is a theory that states that financial markets are i… #
Efficient Market Hypothesis is a theory that states that financial markets are informationally efficient, related terms include market efficiency and random walk, the efficient market hypothesis is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use the efficient market hypothesis to evaluate the risk of investing in a new production line.
Financial Intermediary is an institution that provides financial services to com… #
Financial Intermediary is an institution that provides financial services to companies, related terms include commercial bank and investment bank, financial intermediaries are often used in project finance and economics to raise funds for a project, for example, a food processing company may use a financial intermediary to raise funds for a new production line.
Financial Modeling is the process of creating a mathematical model to simulate t… #
Financial Modeling is the process of creating a mathematical model to simulate the financial performance of a project, related terms include forecasting and simulation, financial modeling is critical in project finance and economics as it helps companies to evaluate the viability of a project, for example, a food processing company may use financial modeling to simulate the financial performance of a new production line.
Financial Statement is a document that provides information about the financial… #
Financial Statement is a document that provides information about the financial performance of a company, related terms include balance sheet and income statement, financial statements are critical in project finance and economics as they provide information about the financial performance of a project, for example, a food processing company may use financial statements to evaluate the financial performance of a new production line.
Hedging is the practice of reducing risk by taking a position in a security that… #
Hedging is the practice of reducing risk by taking a position in a security that offsets the risk of another security, related terms include risk management and derivative, hedging is often used in project finance and economics to manage risk, for example, a food processing company may use hedging to reduce the risk of changes in raw material prices.
Internal Audit is an independent evaluation of a company's financial statements… #
Internal Audit is an independent evaluation of a company's financial statements and internal controls, related terms include audit committee and internal control, internal audits are often used in project finance and economics to evaluate the financial performance of a project, for example, a food processing company may have to conduct an internal audit to evaluate the financial performance of a new production line.
Investment Bank is a financial institution that provides advisory and financing… #
Investment Bank is a financial institution that provides advisory and financing services to companies, related terms include investment banking and corporate finance, investment banks are often used in project finance and economics to raise funds for a project, for example, a food processing company may use an investment bank to raise funds for a new production line.
Liquidity is the ability of a company to meet its short #
term obligations, related terms include liquidity ratio and cash flow, liquidity is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to evaluate its liquidity to determine whether it can meet its short-term obligations.
Loan is a type of financing where the borrower promises to repay the lender with… #
Loan is a type of financing where the borrower promises to repay the lender with interest, related terms include debt financing and credit, loans are often used in project finance and economics to raise funds for a project, for example, a food processing company may borrow money from a bank to finance a new production line.
Management Accounting is the process of providing financial information to manag… #
Management Accounting is the process of providing financial information to managers to help them make decisions, related terms include cost accounting and financial accounting, management accounting is critical in project finance and economics as it helps companies to evaluate the viability of a project, for example, a food processing company may use management accounting to evaluate the financial performance of a new production line.
Market Risk is the risk that the value of a security will fluctuate due to chang… #
Market Risk is the risk that the value of a security will fluctuate due to changes in market conditions, related terms include market volatility and systematic risk, market risk is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may have to evaluate the market risk of investing in a new production line.
Net Asset Value is the total value of a company's assets minus its liabilities,… #
Net Asset Value is the total value of a company's assets minus its liabilities, related terms include asset valuation and liability valuation, the net asset value is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may have to evaluate its net asset value to determine whether it has sufficient assets to finance a new production line.
Net Present Value is a method used to evaluate the viability of a project, it is… #
Net Present Value is a method used to evaluate the viability of a project, it is calculated by subtracting the present value of the costs from the present value of the benefits, related terms include present value and discount rate, the net present value is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use the net present value to evaluate whether to invest in a new production line.
Payback Period is the time it takes for a project to generate enough cash to pay… #
Payback Period is the time it takes for a project to generate enough cash to pay back the initial investment, related terms include cash flow and investment, the payback period is critical in project finance and economics as it determines the viability of a project, for example, a food processing company may have to evaluate the payback period for a new production line to determine whether it is viable.
Portfolio Management is the process of managing a collection of investments, rel… #
Portfolio Management is the process of managing a collection of investments, related terms include investment portfolio and investment strategy, portfolio management is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may have to manage its investment portfolio to determine whether to invest in a new production line.
Profitability Index is a ratio used to evaluate the viability of a project, it i… #
Profitability Index is a ratio used to evaluate the viability of a project, it is calculated by dividing the present value of the benefits by the present value of the costs, related terms include present value and discount rate, the profitability index is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use the profitability index to evaluate whether to invest in a new production line.
Project Finance is a type of financing #
Where the lender uses the cash flows of the project as collateral, related terms include asset-based financing and secured loan, project finance is often used in large-scale projects, such as the construction of a new food processing plant, where the lender can use the cash flows of the project as collateral.
Public #
Private Partnership is a partnership between a public sector entity and a private sector entity, related terms include partnership and collaboration, public-private partnerships are often used in project finance and economics to raise funds for a project, for example, a food processing company may partner with a government agency to raise funds for a new production line.
Risk Assessment is the process of identifying and evaluating the risks associate… #
Risk Assessment is the process of identifying and evaluating the risks associated with a project, related terms include risk management and risk mitigation, risk assessment is critical in project finance and economics as it helps companies to manage risks and ensure the viability of a project, for example, a food processing company may have to conduct a risk assessment to evaluate the risks associated with a new production line.
Risk Management is the process of identifying, assessing, and mitigating risks a… #
Risk Management is the process of identifying, assessing, and mitigating risks associated with a project, related terms include risk assessment and risk mitigation, risk management is critical in project finance and economics as it helps companies to manage risks and ensure the viability of a project, for example, a food processing company may have to use risk management to mitigate the risks associated with a new production line.
Simulation is a method used to evaluate the viability of a project by simulating… #
Simulation is a method used to evaluate the viability of a project by simulating different scenarios, related terms include financial modeling and scenario analysis, simulation is often used in project finance and economics to evaluate the robustness of a project, for example, a food processing company may use simulation to evaluate the impact of changes in market demand or raw material prices on the viability of a new production line.
Snipping is the process of evaluating the viability of a project by analyzing th… #
Snipping is the process of evaluating the viability of a project by analyzing the cash flows and returns, related terms include cash flow analysis and return on investment, snipping is often used in project finance and economics to evaluate the viability of a project, for example, a food processing company may use snipping to evaluate the cash flows and returns of a new production line.
Strategic Planning is the process of developing a plan to achieve a company's go… #
Strategic Planning is the process of developing a plan to achieve a company's goals, related terms include strategic management and business strategy, strategic planning is critical in project finance and economics as it helps companies to evaluate the viability of a project, for example, a food processing company may have to develop a strategic plan to achieve its goals and evaluate the viability of a new production line.
Supply Chain is the network of companies that produce and deliver a product, rel… #
Supply Chain is the network of companies that produce and deliver a product, related terms include supply chain management and logistics, the supply chain is critical in project finance and economics as it affects the viability of a project, for example, a food processing company may have to manage its supply chain to ensure the delivery of raw materials and finished goods.