You now have a lot of information about your project. You know the project’s:

• Revenue - how much money it will bring in


• Expenses – how much money has to be paid out to keep the project operating


• Net Income – the profit your project will make after expenses have been paid • Net Present Value – how much all your future earnings are worth in today’s money


• Payoff Point – when your initial investment will be paid off and you’ll be able to start keeping your profits.

So what do you do with all this information?
The information you have analyzed can tell you whether or not to proceed with an investment project. The biggest thing you learn from a financial analysis is the profitability of a project. You shouldn’t invest in projects that won’t make money or that won’t ever make enough to cover the start up costs.

You can compare projects and use the financial information to judge between them. Typically, the project that is the most profitable is the one you should pursue. However, always keep two things in mind:

• First, you can never predict with absolute certainty things that will happen in the future. These figures are based on reliable data, but they are still projections. Something you didn’t expect may come along and derail a project that seemed like a slam-dunk during analysis.

In this case, part of any good decision is deciding how much risk you can live with. If a really risky investment is going to worry you, then maybe it isn’t the right choice for you no matter how profitable it might be.

• Ultimately, a financial analysis only tells you one part of an investment’s story. A major investment should not only make money, but it should support your other goals. If your goal is to make the most money, then you should always choose the option that is most profitable. If, however, your goals focus on other things like attracting a new kind of customer or offering a new product or service, then you have to decide whether or not the most profitable option fits those other goals.

Risk Tolerance Overview
This resource introduces the concepts of financial and emotional risk tolerance.

How risk tolerant are you?
This resource profiles different kinds of risk takers and uses an example to help you understand your own risk tolerance.