When all of the product and technology assessments are in place and the risks are all understood, a detailed financial picture of the product is needed in order to provide important financial context in our analysis. While there is no single financial measure that provides all of the answers, many provide a very useful measure of financial performance. Each must be used with an understanding of what exactly it is presenting.

AnalysisPlus™ Financial Analysis Services

An AnalysisPlus financial analysis consists of determining the Net Present Value (NPV) and Profitability Index (PI) of implementing the candidate architectures. Depending on the structure of the cash flows, the Internal Rate of Return (IRR) is also calculated. In order to properly determine the NPV, PI, and IRR, AnalysisPlus requires several steps.

Establish Assumptions. Assumptions were specified regarding certain parameters and metrics such as growth projections, tax rates, hurdle rates, and overhead costs. In most cases, standard corporate values can be chosen.

Estimate Costs and Pricing. The wholesale costs of the products’ offerings, as well as the retail costs for the consumer are specified in order to determine gross margin. If retail prices have not been established, a predefined margin is added to the cost to specify a retail price.

Define Representative Product Configurations. One or two standard product configurations are specified. These configurations specify the quantities of individual products that make sellable configurations.

Forecast Revenue. Forecasts for each specified configuration is specified in order to estimate total costs and revenues.

Forecast Expenses. Expenses associated with developing, marketing, selling, and maintaining the products are determined and specified.

Determine Cash Flows, NPV, and PI. The EBIT, EBITDA, and Free Cash Flows are calculated in order to determine the NPV and PI of the product.

Perform What-if Analyses. The assumptions used in the financial calculations are modified in order to simulate a variety of conditions. Perform Sensitivity Analysis. A sensitivity analysis is performed in order to determine the sensitivity of the assumptions used in the financial calculations.

Perform Breakeven Analysis. A breakeven analysis is performed in order to determine the sales volume of the configurations needed to make the product a zero-NPV product. A spreadsheet is used to make financial calculations. The spreadsheet is designed to allow for flexibility in assumptions and for greater precision when used with additional details such as working capital, debt financing, and tax implications.

As a result of the Financial Analysis, a financial assessment is provided that included information such as

To best assess the financial picture of the project Inish provides these primary services:

Establish Assumptions

Before any financial analysis can be performed, the assumptions used in the analysis must be documented and understood. In addition, the analysis must allow for the assumptions to be easily changed and the new results immediately available. Flexible assumptions allows for valuable what-If analyzes. An AnalysisPlus sensitivity analysis varies the assumptions over specified ranges of values in order to determine the sensitivity of financials to errors in assumptions.

Determine Costs and Pricing

The costs of the products are documented for use in developing the NPV of the product. These costs (also referred to as the Cost of Goods Sold) document the costs associated with implementing all of the candidate products. Unless overridden, the costs increase each period according to the specified growth rate. The pricing of the products refers to the preliminary pricing that your company is expected to charge your customers for the candidate products. Unless overridden, the product pricing increase each period according to a specified growth rate.

Determine Possible Product Configurations

Product configurations documents a limited set of representative product configurations for use in forecasting revenues.

Establish Forecasts

The Forecast portion of the financial analysis provides a sales forecast for each of the product configurations. Unless overridden, the volumes increase each period according to a specified growth rate.

Project Total Costs and Revenues

By knowing the forecasted sales volume, costs, and pricing, one is able to determine projected product costs and revenues for each configuration.

Project Expenses

In order to provide an accurate financial picture, other expenses associated in developing and maintaining the product must be documented. Expense items include:

• Cost of Goods Sold
• Administration charges (G & A)
• Initial investment
• Ongoing maintenance charges
• Cash Flows and NPV

Finally, the NPV and PI of each product configuration can be calculated. The final NPV analysis contains:

• Income Statement including EBIT, EBITDA, and net income
• Free Cash Flow
• Tax Analysis
• Unlevered Valuation
• Present Value of the product configuration

Perform What-if Analysis

AnalysisPlus performs extensive what-if financial analyses. Any assumption or value may be changed and financial values recalculated. In order to provide an accurate financial picture of the candidate product configurations, extensive what-if analyzes are performed. The corresponding results then analyzed. Any of the inputs into the AnalysisPlus model may be modified including:

As a result of modifying any or all of these values, the following are recalculated:

Perform Sensitivity Analysis

A variation of the What-If analysis is the Sensitivity Analysis. By setting up ranges of values in which certain assumptions are varied, a baseline, optimistic, and pessimistic financial picture may be developed. Variability of the assumptions is specified as a percentage deviation from the baseline value. A positive variation percentage specifies that the larger the value of the assumption, the more optimistic the assumption is considered to be. A negative variation percentage specifies that the larger the value of the assumption, the more pessimistic the assumption is considered to be. For example, by specifying certain variations, the optimistic and pessimistic range between the values can be determined.

Perform Breakeven Analysis

An AnalysisPlus breakeven analysis is performed in order to determine the sales volume of configurations that must be sold in order for the NPV to equal $0. This is also referred to as the Payback period. By iterating the sales volumes from zero to the amount specified in the assumptions, and calculating the NPV for each volume, the breakeven point can be located (presuming a breakeven point exists). the above figure illustrates the breakeven point for the example. The chart shows two breakeven points: One for when the sales volume of the other product configuration is at its minimum, and the other for when the sales volume of the other product configuration is at its maximum.