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Chapter 2

Impact on the reported financial

position and performance

6.1 Introduction

As well as evaluating a project’s likely impact on shareholder wealth
(using NPV), it is also important to assess the impact on the reported
financial position and performance of the company, for example on key
performance indicators such as:

 gearing

 return on capital employed (ROCE)

 earnings per share (EPS)

6.2 Key considerations

 Investing in a new project is likely to increase the company’s non-
current assets.

 The returns generated by the project will increase earnings (and
hence EPS).

 Don’t forget to also consider the necessary financing. For
example, borrowing money to fund the investment will impact
gearing, and also earnings as interest has to be paid.

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