1. financial internal rate of return (FIRR)
Financial internal rate of return is a dynamic index to evaluate the profitability of a project. According to the different analysis scope and objects, financial internal rate of return can be divided into project financial internal rate of return, capital rate of return (i.e. capital financial internal rate of return) and investor rate of return (i.e. investor financial internal rate of return).
(1) Project financial internal rate of return. It is to examine the profitability of the whole project before the project financing scheme is determined (without calculating loan interest) and before income tax, as a reference for decision makers to compare and choose project schemes and banks and financial institutions to make credit decisions.
Because the interest rates of various financing schemes of the project are different, the income tax rate and preferential policies enjoyed may also be different. When calculating the financial internal rate of return of the project, in order to maintain the comparability of the project scheme, interest expenses and income tax are not considered.
(2) Return on capital. Based on the calculation of project capital, this paper investigates the possible income level of capital after income tax.
(3) the rate of return of all investors. It is based on the capital contribution of all investors, and it is to examine the possible income level of all investors.
The financial internal rate of return (FIRR) of the project should be judged according to the financial benchmark rate of return (ic) published by the industry or set by the evaluation agency. When FIRR≥ic, it is considered that the profitability of the project meets the requirements. The rate of return of capital and investors should be compared with the lowest expected rate of return of investors to judge the level of return of investors.
2. Financial net present value (FNPV)
Financial net present value is an absolute index to evaluate the profitability of the project, which reflects the present value of the excess profits obtained by the project in addition to the profits required to meet the set discount rate. The financial net present value FNPV≥0 means that the profitability of the project reaches or exceeds the profitability calculated at the set discount rate. You can choose the calculated pre-tax financial net present value or post-income tax net present value according to your needs.
3. Project investment payback period (Pt)
The payback period of project investment can be calculated according to the cash flow statement of project investment. The shorter the payback period of the project investment, the better the profitability and risk resistance of the project. The criterion of payback period is the benchmark payback period, and its value can be set according to the industry level or the requirements of investors.
4. Total return on investment (ROI)
The total return on investment indicates the profit level of the total investment. The total investment rate of return is higher than the reference rate of return in the same industry, indicating that the profitability expressed by the total investment rate meets the requirements.
5. Net profit rate of project capital (ROE)
The net profit rate of project capital indicates the profit level of project capital. The net profit rate of the project capital is higher than the reference value of the net profit rate of the same industry, which shows that the profitability expressed by the net profit rate of the project capital meets the requirements.