What does investment appraisal evaluate?

Investment appraisal primarily evaluates the viability of an investment project. This process involves assessing whether the project is worth pursuing by analyzing various factors such as costs, potential returns, and overall impact on the business. It helps businesses determine if the financial benefits outweigh the costs, guiding decision-making around allocating resources effectively.

This evaluation often incorporates several techniques, including Net Present Value (NPV), Internal Rate of Return (IRR), and payback period analysis, among others. By focusing on the expected financial performance, investment appraisal provides a structured way to forecast outcomes and make informed decisions about possible investments.

While assessing risks, market conditions, and project timelines may be relevant considerations when reviewing an investment opportunity, the core purpose of investment appraisal is to gauge the feasibility and potential profitability of an investment project itself.