Financial feasibility study: How do you accurately calculate costs and profits?

The financial feasibility study is one of the main pillars of the success of investment projects, as it helps determine the profitability and economic feasibility of the project. This study relies on an accurate analysis of expected costs, potential revenues, and cash flows to ensure the sustainability of the project and the achievement of attractive returns. The study requires a clear methodology that includes accurately identifying all expenses and revenues, and analyzing financial indicators to ensure sound investment decisions.
The financial feasibility study is an integral part of strategic planning for projects, as it helps investors understand the financial aspects in an integrated manner, which contributes to minimizing risks and increasing the chances of success. This study relies on detailed data and accurate analyses that enable decisions to be made based on clear scientific and economic foundations.
The financial feasibility study includes several key components, the most important of which are analyzing different types of costs, estimating potential revenues, calculating net profits, and analyzing cash flows to ensure the sustainability of the project. It also includes evaluating financial indicators such as break-even point, rate of return on investment, and net present value, which provides insight into the financial viability of the project in the short and long term.
The goal of this study is to help project owners and investors determine the extent to which the project can achieve financial returns commensurate with the potential risks, and help develop accurate financial plans to cover operational expenses and achieve sustainable profits. By relying on a comprehensive financial analysis, investors can avoid haphazard decisions and build more efficient financial strategies that support project success in a changing competitive environment.
Preparing a financial feasibility study requires collecting and analyzing a huge amount of data, both from within the project and from the market and competitors, to ensure the accuracy of financial estimates and avoid unrealistic expectations. This study also relies on the use of advanced financial and analytical tools that help simulate different scenarios and determine the extent to which the project is affected by economic and market factors.
In light of economic developments and continuous changes in the markets, the financial feasibility study has become a necessary tool for any project that seeks to achieve sustainability and growth. Therefore, preparing it in a professional manner ensures smarter investment decisions, minimizing financial risks and increasing the chances of achieving the targeted profits.

First: Define costs accurately
Costs include all expenses associated with the project, and are divided into several main types:
Capital costs:
These include the costs of purchasing fixed assets such as land, buildings, equipment, and technical devices.
Construction and set-up costs, such as licenses, engineering consultancy, and planning fees.
Operational costs:
Includes employee salaries, rent, and utility bills such as electricity and water.
Production costs include raw materials, transportation, and distribution.
Includes administrative and marketing expenses, such as advertising campaigns and logistics.
Indirect costs:
Includes taxes, insurances, depreciation, and regular maintenance.
Includes any contingencies or financial risks that may arise during operation.
Secondly: Estimating projected revenue
The revenue estimate should be based on an accurate market analysis and a study of the demand for the product or service provided. This depends on several factors:
Studying the size of the market and competitors, and determining the target market share.
Analyzing consumer behavior and their willingness to pay the proposed price.
Estimating the expected sales volume based on market trends and consumption data.
Determine the appropriate pricing model based on cost analysis and target profit margins.
Third: Calculating profits and cash flow
To calculate profits, the following formula is used:
Net Profit = Total Revenues – Total Costs
As for cash flow, it represents the actual liquidity available to the project after deducting operating and capital expenses. It is calculated according to the schedule of payments and receipts to ensure the project’s ability to cover future expenses and investments.
Fourth: Breakeven Analysis and Profitability Indicators
Analyzing the break-even point and financial performance indicators is essential in the feasibility study, as it contributes to assessing the feasibility and sustainability of the project.
Break-even point:
It represents the level at which revenues are equal to costs, i.e. the project does not make losses or profits.
It is calculated according to the formula:
Break-even point = fixed costs / (selling price – variable cost per unit)
Return on Investment (ROI – Return on Investment):
It is used to measure the expected return on invested capital and is calculated as follows:
ROI = (Net Profit / Total Investment) x 100
The higher the rate of return, the more economically viable the project is.
Net Present Value (NPV – Net Present Value):
It helps determine the future value of the expected profits from the project after deducting inflation and interest.
A positive value of the indicator is an indication of the viability of the investment.
Internal Rate of Return (IRR – Internal Rate of Return):
Measures the expected annual return on investment and is used to compare different projects before making an investment decision.
If the IRR is higher than the bank interest rate, the project is considered profitable.

The role of Valeo Feasibility Studies and Business Solutions
Valeo Feasibility Studies and Business Solutions plays a pivotal role in providing specialized financial consultancy to study the financial feasibility of projects, as it relies on the latest analytical tools and scientific methodologies to ensure a comprehensive and accurate assessment of the financial status of investment projects. The company aims to support investors and entrepreneurs in making informed financial decisions based on accurate data and comprehensive analysis, which contributes to improving the chances of success and long-term financial sustainability of projects.
Valeo has a team of financial experts and consultants who specialize in market analysis, risk assessment, and providing effective financial solutions that are in line with market requirements and investor objectives. Thanks to its extensive experience, the company helps investors build strong financial strategies that ensure attractive rates of return and minimize the risks associated with the project.
Services provided by Valeo in the field of financial feasibility study:
1. Preparation of detailed financial studies
Valeo prepares comprehensive financial studies that include:
Analyzing capital and operating costs, including all direct and indirect expenses.
Estimating projected revenues based on accurate market studies, demand and competition analysis.
Analyze the project’s cash flow to ensure its financial sustainability and identify financing needs.
Evaluate the feasibility of the project through the use of advanced financial indicators such as return on investment (ROI) and net present value (NPV).
2. Financial modeling that simulates different project scenarios
Valeo offers sophisticated financial models that take into account potential project scenarios, helping investors make strategic decisions based on:
The impact of economic and market changes on the project.
Analyze the best and worst case scenarios to estimate the expected financial risks.
Evaluate the optimal capital structure for the project and analyze the feasibility of self-financing versus external financing.
3. Provide strategies to maximize return on investment and improve financial performance
Valeo helps companies and investors develop effective financial strategies by:
Optimizing operational cost management to increase profit margins.
Developing competitive pricing models that maximize revenue and create a competitive advantage in the market.
Providing solutions to increase financial efficiency and reduce unnecessary expenses.
Optimizing financing and cash flow management strategies to ensure sustainable liquidity.
4. Sensitivity analysis and testing the impact of external factors on profitability and financial sustainability
Valeo performs advanced sensitivity analyses to measure a project’s vulnerability to various economic factors, such as:
Market price and cost fluctuations.
Changes in fiscal and tax policies that may affect the project.
The impact of macroeconomic factors such as inflation, interest rates, and currency fluctuations.
Evaluate the project’s resilience to unexpected changes and develop alternative plans to deal with potential crises.
Why choose Valeo for feasibility studies and business solutions?
Deep experience: Valeo has a proven track record in preparing feasibility studies for various sectors, including manufacturing, tourism, hospitality, real estate, and energy.
Advanced scientific methodologies: Utilizes state-of-the-art analytical methods and financial planning tools to ensure an accurate and reliable assessment of projects.
Comprehensive risk analysis: Provides financial and investment risk management strategies to ensure sustainable returns.
Customized solutions: Our services are tailored to the needs of each project, with a focus on maximizing returns and minimizing costs.

A financial feasibility study is the cornerstone of any successful project, as it contributes to providing a clear vision about the feasibility of the investment, analyzing risks, and developing financial strategies that ensure the sustainability of the project and achieve sustainable profits. By relying on Valeo for feasibility studies and business solutions, investors and entrepreneurs can obtain accurate financial studies, based on the latest analytical methods and specialized consultancy, helping them make investment decisions based on solid foundations.
Whether you are in the planning stage of a new venture or seeking to improve the financial performance of an existing one, Valeo provides you with comprehensive solutions that ensure success in a changing investment environment. Do not hesitate to contact us via WhatsApp or call us directly, and our specialized team will be happy to answer your inquiries and help you achieve your investment goals with professionalism and confidence.

Sources
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2021). Corporate Finance. McGraw-Hill Education.
This book explains the fundamentals of finance and financial analysis, including costing, revenue, and cash flow analysis.
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial Management: Theory & Practice. Cengage Learning.
The book covers various financial analysis tools, such as return on investment (ROI), sensitivity analysis, and cash flow analysis.
Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
This source deals with the valuation of projects and investments using advanced financial models.
Link to the book
Financial Reports issued by the Saudi Ministry of Investment
Provides up-to-date data on various investment sectors in Saudi Arabia and analyzes the markets.
Link to Ministry of Investment