Financial Evaluation of Forestry Investments: Common Pitfalls and Guidelines for Better Analyses
- 249 Downloads
Many of the papers submitted to Small-scale Forestry contain financial analyses of forestry investments. Unfortunately, both the method of analysis and the reporting of the analysis in initial submissions are often inadequate, and result in manuscripts being rejected or requiring major revision prior to acceptance. This paper discusses some of the common deficiencies in financial analyses in research papers, and presents a simplified financial analysis of a forestry plantation development to illustrate key points. Simple guidelines are presented to overcome common major weaknesses, for example in identifying relevant cash flows, confusion between financial and economic analysis, dealing with capital outlays, and determining an appropriate discount rate.
KeywordsForestry financial analysis Plantation costs and returns Relevant cash flows Weighted average cost of capital Current versus constant prices Sunk costs
- Alavalapati JRR, Mercer DE (2004) Valuing agroforestry systems: methods and applications. Kluwer Academic Publishers, New YorkGoogle Scholar
- Harrison S, Venn T, Sales R, Mangaoang EO, Herbohn J (2005) Estimated financial performance of exotic and indigenous tree species in smallholder plantations in Leyte Province. Ann Trop Res 27(1):67–80Google Scholar
- Klemperer WD (1995) Forest resource economics and finance. McGraw-Hill, New YorkGoogle Scholar