Financial Profitability Models for Agriculture and Agroindustry

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This easy to follow presentation forms part of the Rural Agroenterprise Development Project of CIAT and walks the reader through how to develop financial profitability models for agriculture and agroindustry.

It begins by considering what a financial profitability models are and why they are developed. It suggests that financial profitability can help with investment decisions, such as whether investing in a given business will lead to a higher return than if funds were left where they are or which of two investment options offers the higher return.

In particular, the document focuses on two calculations: Internal Rate of Return (IRR) and Net Present Value (NPV). It begins with a brief look at interpreting the two, before providing details on how they are calculated and giving two examples of each.

Finally, the presentation discusses how to develop financial profitability models – it examines a number of factors that need to be estimated or included and highlights common items that form part of business accounts but should not be included in these calculations i.e. the need to focus on cashflows rather than pure accounting items. The ultimate page compares agricultural and agroindustry models.

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