Financial firms have a commercial mandate and invest in companies to achieve a targeted investment return. A business plan should also include a list of milestones that must be met to gain value for investors. These are known as investment criteria. If the investment firm follows the criteria outlined here, it will have a higher probability of maintaining a customer’s interest. In addition to financial considerations, investment criteria can help investors understand the experience of the company’s executives.
Capital-output ratio
There are many criticisms of the capital-output ratio as a part of investment criteria. While the concept of investment is useful, it tends to assume that investment in a sector will generate multiple growth ways. That is not the case in the agricultural or industrial sectors. In fact, investment in one sector can cause a decline in another. As a result, the capital-output ratio should not be used as the sole measure of investment.
Payback period
The payback period for investment criteria is a method for calculating the rate at which the initial investment can be recovered. In other words, the faster the payback period, the better. Consider two projects with equal outlays – one pays $1500 in year one, and the other pays $750 for four years. Which project will earn more money in the long run? Let’s see. If a project can generate a higher return on investment within a specified period of time, the payback period for each project is equal.
Platform company
The next step in investing in a platform company is identifying the type of transaction that it will facilitate. A platform must have an established management team that possesses a proven track record and is able to direct operations. Some platform companies may even have former executives of large corporations sitting on the board as advisors. If these traits are present, you will have an opportunity to invest in a platform with high growth potential. Continue reading to learn how to identify the most important investment criteria for a platform company.
Executive experience
A top investment executive is responsible for planning and implementing an organization’s investment programs. The job description should specify the educational requirements, experience, and special skills that a top investment executive must possess. This type of job description should ensure that qualified applicants are nominated for the position. When completing an application, candidates should provide all the relevant experience. Then, they should review the information and double-check that all the details are accurate.
Uniqueness of business model
Whether the organization uses a traditional approach to marketing or a new technology to drive sales, the business model chosen should enable it to reach its goals. For example, Xerox PARC, an independent research center set up in the 1970s, spawned such technological innovations as the graphical user interface, Ethernet, and large scale semiconductor integration. Unfortunately, its business model did not enable it to create new businesses or capture value from those innovations.
