Project financial analysis
PROJECT FINANCIAL ANALYSIS
I. INTRODUCTION
This annex shall be filled in only for investment projects, regardless their estimated total
value.
The main objective of the financial analysis is to compute the project’s financial performance
indicators – its profitability. This analysis is usually done from the point of view of the owner
(or legal administrator) of the infrastructure.
II. GENERAL INFORMATION ABOUT THE PROJECT
Project title
(insert title)
Name of the Lead Applicant
(insert name)
Project start date
(dd.mm.yyyy)
Project duration
(months)
II. FINANCIAL ANALYSIS METHODOLOGY
1. Please provide a short description of the methodology used.
It must contain information about:
- all key assumptions regarding operational costs, capital replacement costs, revenues and
residual value;
- the macroeconomic parameters used;
- the steps taken into account during calculations;
- the data used for preparing the analysis and the main findings of the financial analysis,
including the results of the financial viability analysis in order to demonstrate that the project
shall not remain without liquidities in the future (the commitment of the project beneficiary,
of the owners and/or public authorities for supporting the investment, operational costs and
replacement costs).
Project financial analysis
III. EVALUATION OF THE FINANCIAL RETURN ON INVESTMENT
1. Definitions:
Net present value (NPV) represents the amount obtained after having deducted the
expected (discounted) investment, operational and replacement costs of the project from the
present value of the expected revenues.
The internal rate of return (IRR) is the discount rate that makes the NPV of all cash flows
from the project equal to zero.
The financial return of an investment is evaluated by estimating the net present value (NPV)
and the internal rate of return (IRR) of the investment. These indicators are comparing
investment costs with net revenues and determine the extent to which project net revenues
are able to pay back the investments, regardless of funding sources.
In order for a project to require contribution from funds: NPV before EU contribution
should be negative and IRR should be below the discount rate used for the analysis, while
NPV after EU contribution should be negative or zero, and IRR should be below or equal to
the discount rate used for the analysis.
2. Please fill in the following table with the indicators calculated for your
project.
Without contribution from
public funds
With contribution from public
funds
Internal rate of
return
Net present
value
IV. FINANCIAL SOURCES FOR THE PROJECT
1. Please indicate if the project is estimated to generate revenues:
Yes – 
No – 
If your answer is “Yes”,
Project financial analysis
2. Please proceed to fill in the following table:
Parameter
Notation
Value
Reference period (years)*
Discount rate** (%)
Assets lifetime (years)
Investment cost
I
Eligible investment cost
EI
Non-eligible investment cost
NEI
Discounted investment cost
DI
Discounted eligible investment cost
DEI
Discounted non-eligible investment cost
Funding rate for eligible costs from community
resources ***
DNEI
K
Discounted residual value
DRV
Discounted net revenue *****
DNR
3. Please calculate the following:

P – financing rate
P = (DI – DNR – DRV) / DI
P = ………………………………….

DFR - discounted funding requirement (community resources)
DFR = K x DEI x P
DFR = ………………………………………
* For the reference period please refer to the table presented below, the Annex 1 to
Commission Delegated Regulation (EU) No. 480/2014:
Project financial analysis
** The discount rate is the rate of return used in a discounted cash flow analysis to
determine the present value of future cash flows. According to Article19 (Discounting of cash
flows) of Commission Delegated Regulation (EU) No 480/2014, for the programming period
2014-2020, the European Commission recommends that a 4% discount rate in real terms
is considered as the reference parameter for the real opportunity cost of capital in the long
term.
*** The maximum funding rate for eligible costs from ERDF within Interreg V-A RomaniaHungary Programme is 85%.
**** Where value added tax is not an eligible cost, the calculation of discounted net revenue
shall be based on figures excluding value added tax.
***** According to Section III, Article 15 of Commission Delegated Regulation (EU) No
480/2014, revenues and costs shall be determined by applying the incremental method based
on a comparison of revenue and costs in the scenario of the new investment with the
revenues and costs in the scenario without the new investment.
4. In case there are no estimated revenues, please provide information related
to the financing source for the operating and maintenance costs.
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Project financial analysis
V. VERIFICATION OF THE FINANCIAL SUSTAINABILITY OF THE PROJECT
1. Guidance:
The analysis of the financial sustainability is based on not discounted cash flow forecasts.
This is used mainly for demonstrating that the project shall have sufficient liquidity year after
year in order to always cover investment and operational costs throughout the entire
reference period.
The key issues of the financial sustainability analysis are the following:
1.
Financial sustainability of the project is ensured by verifying that net cumulative cash
flow (not discounted) is positive (or equal to zero) for every year and throughout the entire
reference period;
2.
Net cash flows taken into account should:
Take into consideration investment costs, all financial resources (national and EU),
cash incomes, operational and replacement costs the moment they are paid, repayments of
financial obligations of entities, as well as capital contributions, interests and direct taxes;
-
Exclude VAT, except the case when VAT is not recoverable;
Not take into account the residual value, only in case the asset is being liquidated in
the last year of analysis.
3.
In case of an operation that is not subject to Article 61 from Regulation (EU) No
1303/2013 or when negative cash flow is forecasted for the future, the way of covering costs
has to be indicated through a clear, long-term commitment of the beneficiary/operator,
committing itself to provide sufficient funds from other sources in order to ensure the
sustainability of the project;
4.
If projects are part of a pre-existing infrastructure, such as capacity expansion
projects, the system operator’s global financial sustainability has to be verified in the
“project” scenario (not only the capacity of the extended segment) and a sustainability
analysis has to be made at the level of the system operator, while results need to be taken
into account in the risk assessment.
1. Please adapt and fill in the following table, in order to demonstrate that
your project is financially sustainable:
Years*
1
Total financial
resources
Total operating
income
Total operating
2
3
4
5
6
7
8
9
10
11
12
13
14
n**
Project financial analysis
costs
Total investment
costs
Interest
Repayment
Taxes
Total cash
outflows
* For the reference period please consult the table presented in page 4 of this annex.
n** - cannot exceed 30 years.
VI. MANAGING RISKS
1. Methodology used
(short description)
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2. Risk analysis
Please provide a risk analysis taking into consideration the following aspects:
- identification of risks;
- evaluation of level of risks – it measures how risk is likely to take place and can be expressed
in LOW, MEDIUM, HIGH;
- impact assessment of risks – it measures the damage that it inflicts to the project;
- risk management.
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