How to analyze the economic feasibility of a business



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Language: English
also available in Spanish
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Technical Note and tutorial


This technical note takes a look at the feasibility of a joint venture, UTE Construmás, which was set up to build a parking lot. Readers must figure out how much money they need in order for the joint venture to be feasible and what financial resources must be provided over Construmás’s lifetime. In order to do so, the case walks readers through six stages to analyze its economic viability: establishing the time horizon of the forecast, determining the assumptions for the forecast, deriving the forecast profit and loss statement for the company, calculating the balance sheet associated with the forecast profit and loss statement, deducing the forecast cash flow situation, and drawing conclusions. Readers are provided with details and financial information for each stage. After going through the stages, a conclusion is reached about building the parking lot through a join venture and its profitability from an accounting point of view. However, it must also cover a peak liquidity requirement which cannot be solved by increasing turnover.

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