Financial Feasibility for Projects: How to Measure Profits and Reassure Investors in Numbers

Executive Summary

Financial feasibility is the true test of any investment idea; without it, a project remains a wish.

This guide equips you with the tools to build a robust financial model, including Net Present Value (NPV) and Internal Rate of Return (IRR) calculations, while explaining how to conduct sensitivity analysis to navigate the volatility of Arab markets.

Whether seeking bank financing or an investment partner, this guide shows how to make your figures defensible, logical, and profitable.

Financial Glossary

Term Simplified Description
CapEx (Capital Expenditure) One-time expenses to establish the project (equipment, buildings).
OpEx (Operating Expenditure) Daily costs to maintain operations (salaries, utilities, rent).
WACC The “cost of money,” whether from loans or equity.
Payback Period Time needed to recover initial project costs.
Discount Rate Rate used to calculate the present value of future profits.

1. Why Most Financial Feasibility Studies Fail

Investors in the Middle East face unique risks: inflation, currency fluctuations, and volatile energy prices.

A common error is over-optimism and ignoring the cost of capital.

To gain investor confidence, your financial model must incorporate the Time Value of Money (TVM).

2 Core Metrics: NPV & IRR

Experts do not judge a project by gross profit, but by two golden indicators:

1. Net Present Value (NPV)
The difference between future cash inflows (discounted to today’s value) and the initial investment.

  • Rule of Thumb: If NPV > 0, the project is profitable and acceptable.

  • Formula:

NPV=t=1∑n​(1+r)tCt​​−C0​

Where  t = cash flow, rr = discount rate,  = initial investment.

2. Internal Rate of Return (IRR)
The annualized percentage return generated by the project.

  • Rule: IRR should exceed bank interest rates and opportunity cost (what you could earn in real estate or stocks).

3. Regional Context: Determining Discount Rates

A single discount rate cannot apply across Arab countries.

  • GCC countries: Typically 8–12% due to currency stability.

  • Other markets (e.g., Egypt, Lebanon): May reach 20%+ to account for inflation and currency risk.

Tip: When preparing a Business Plan, justify your chosen discount rate—financial analysts look for this.

4. Sensitivity Analysis: Planning for “What If?”

Investors fear unknown risks, not risk itself.

Include tables showing:

  1. Sales decrease by 15%.

  2. Raw material costs increase by 20%.

  3. Start-up delayed by 6 months.

Consulting Principle: A strong project maintains a positive NPV even in pessimistic scenarios.

5. Efficiency Lever: Building an Assumptions Library

To accelerate financial modeling, maintain an updated library including:

  • Local energy and fuel prices.

  • Average sector wages.

  • Tax rates (income, VAT).

This reduces model-building time by 50% and standardizes assumptions across projects.

6. Reliable Financial Data Sources (2020–2026)

  • Central Banks: Official interest rates and inflation data.

  • Stock & trading platforms (e.g., Tadawul, Dubai Financial Market): Profit margins in comparable sectors.

  • Big Four Reports (PwC, Deloitte, EY, KPMG): Macro-economic analyses for the region.

Case Study: Real Estate Development Project (Residential & Commercial)

  • Challenge: High interest rates and construction costs.

  • Financial Solution: Used Discounted Cash Flow (DCF) model.

    With a 10% discount rate, the project showed low returns.

  • Adjustment: Modified the capital structure by increasing equity and reducing bank loans, lowering WACC and raising IRR to 18%, making the project attractive to investors.

Checklist for Financial Feasibility

  1. Have you separated CapEx from OpEx?

  2. Did you prepare a cash flow projection for at least 5 years?

  3. Did you account for depreciation of equipment and assets?

  4. Is there a contingency buffer of 5–10%?

  5. Is IRR higher than bank loan rates?

  6. Have you defined the payback period?

  7. Is the tax study compliant with local regulations?

Common Mistakes in Financial Calculations

  • Ignoring inflation: not increasing annual costs by expected inflation.

  • Confusing cash flow with accounting profit: profit does not equal cash in the bank.

  • Neglecting working capital: money needed to buy inventory and pay salaries before collecting revenue.

Key Takeaways

  1. Numbers don’t lie: NPV and IRR are the universal language with investors.

  2. Realism builds confidence: pessimistic scenarios protect more than optimistic ones.

  3. Time is money: delays reduce NPV.

  4. Financial flexibility: your model must be dynamic and adjustable at the click of a button.

  5. Specialization matters: financial feasibility differs between factories, tech projects, and each sector has its own metrics.

7-Point Action Plan (Start Your Calculations Now)

  1. Determine initial investment: gather invoices and quotes for equipment and rent.

  2. Estimate revenues: based on SOM (Serviceable Obtainable Market) from prior analysis.

  3. Calculate Cost of Goods Sold (COGS): how much to produce one unit.

  4. Determine administrative expenses: salaries, marketing, licenses.

  5. Choose discount rate: consult a financial expert to define appropriate WACC.

  6. Build financial model in Excel: extract NPV and IRR.

  7. Test sensitivity: adjust assumptions and see how the project responds under stress.

References:

  • International Monetary Fund – Global Financial Stability Reports (2025)

  • Harvard University – Principles of Managerial Finance

  • Arab Central Banks Financial Bulletins (2024–2025)