Investment appraisal is not all about financial factors. There are non-financial factors that plays significant role in making any meaningful investment decision.
In fact, most of those non-financial factors act as backbone that will either make or mare the investment if taken.
Below are some of those non-financial factors:
• Climatic Issues. Green activities has recently gained popularity to the extent that companies not investing in equipment that preserve the environment are seen as a non responsive and irresponsible by the public who will in turn become customers later. In order for companies to preserve this benefit, it some times has to invest in some projects that are not too financially sound.
• Staff Motivation. The effect of an investment on the motivation of staff should be considered before furthering in the investment process
• Backend profit/sales. Another non-financial factor to consider is the backend sales that will come to the company as a result of investing in some non profitable projects. This will act as a bait to bring in customer that may eventually see another product that they may like.
• Customers’ satisfaction. The satisfaction that the customers will get from an investment is a non-financial factor to consider before making any investment. After all, customers are always the king.
• Availability of manpower. The company needs to make sure that there is enough manpower to operate the equipment to be invested in.
• Government regulation. This is an obvious but the most neglected aspect of investment appraisal. There is need to consider the government relevant laws before making investment appraisal.
• Competitors’ action. There is need to consider the action of your competitors before making investment decisions. This will in most cases lead to companies making investments that are not purely based on financial grounds.
• Trend (present and potential). The trend is your friend is a popular saying amongst financial professionals. You consider the trend before making an investment in a project to see if there is potential in the proposed project.
Non-financial factors or criteria have never been so important in investment decision as it is in today’s world where there is so much uncertainty especially in finance. Hence, the need to take them serious.
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Allen Taylor says
Nice writing. You are on my RSS reader now so I can read more from you down the road.
you are welcome Taylor
Damilxy Stacey says
Thank you so much. this was really helpful to me! Writting my exams tomoro in financial analysis hope the question on non financial factors of Investments is one of then questions! can u also be of help with my disertation??? asking for too much huuhhh? Thanks all the same and remain Blesesd Chinweike.
Palas Kabir says
I spent all day searching this. finally found it
warren chibale says
you have really helped me understand and know more of the non-financial factors which influence investment decision, i only knew of cost capital, inflation rates and taxation policy. Hope they are coming in financial analysis.