chapter  7
13 Pages

Financial and Economic Analyses

WithH. David Akroyd

Project financial analysis takes place within a given context of macro-economic and sector policies. Revenue and cost projections expressed in financial terms will drawn up for proposed agriculture and rural development sector projects. Sometimes market prices reflect economic values and can be used in economic analysis. To eliminate the effects of inflation, economic analysis is carried out in constant prices terms. Sensitivity analysis is a technique used to test systematically what happens to the earning capacity of a project if events differ from the estimates and projections made about them during the planning process. Risk analysis is a technique used to assess the probabilities of occurrence of all critical project elements. Projected cash flow statements, trading and profit and loss accounts and balance sheets will be included in the preparation report when a project is run wholly or partly as a commercial enterprise, as was the case with the sugar company which managed the South Nyanza Sugar Project in Kenya.