What are the Common Metrics?
Getting right down to ‘grass roots” evaluation / financial results, the following standard industry metrics can be generated within models: –
- NPV – net present value
- IRR – internal rate of return
- Return on investment.
- Risked weighted valuations.
(Except for very special situations, these are after taxes and royalties)
These metrics are only the very start of the process. They are not the main output from the modelling. Each evaluation model yields far more awareness and is much broader and deeper than these simple metrics.
Selecting the final option is much, much more than finding the highest NPV and/or highest IRR. As this website explains, these are just two considerations inside a big basket of evaluation concepts.
The economic evaluation / financial modelling process should produce a range of spreadsheet models of the business or project so that all configurations and all scenarios can be fully assessed and compared. These may need to be risk weighted. Many cases might be eliminated in the early stages of assessment and only a few caried through to full evaluation in Level 2.