Well, economic analysis in its fundamental is relatively simple. It’s the measure of possible return on investment or net cash flow.
The reason why we do economic evaluation is to find out if there’s economic merit of making an investment, in any venture we might be interested to try in. So, our net cash flow must be positive and also must factor in the amount of risk which we would be inclined or ready to take.
Never take risk which we can’t afford to and when you want to take risk, make sure that it’s a calculated one.
Be prepared, and just like Warren Buffet use to say, never test the depth of the water with both feet.
In simplest term, a net cash flow forecast is a forecast of the “cash” balance after deducting our Capital Expense (CAPEX) and Operational Expense (OPEX). The merit or the economic health of the project Net Cash Flow (NCF).
I’ve done this with my blogging side-hustle, and it’s yet to break-even.
Such analysis might not be definitive or an all inclusive analysis, but it’s something for us to base our reasoning and align our risk management accordingly.
We all take risk, but we should be careful with it.
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Categories: Reading Notes