Model for Sustainable Financial Planning and Investment Financing Using Monte Carlo Method

Abstract

The article deals with current issues of finance and investment planning with a selective focus on financial decision-making processes using sophisticated software tools. The article has a special significance in this period when it is necessary to re-evaluate and consider ways of appropriate and effective investment and financial policy in view of the restrictions in enterprises in Slovakia, which brings with it the global pandemic COVID-19 or another crisis in enterprises. The aim of the article is to propose a methodology as a tool for streamlining the investment activities of companies. The proposed methodology combines the usability of traditional and modern economic methods, making it an important tool for the sustainability and competitiveness of enterprises. Three variants of investment decisions in the enterprise were simulated using simulation in terms of two approaches. The first approach focuses on mathematical–economic calculations of deterministic modeling through traditional software tools. The second stochastic modeling uses the simulation of financial risks using a modern software tool using the Monte Carlo method. The output is the creation of a graphical management model in the form of an algorithm.

New Approaches to Project Risk Assessment Utilizing the Monte Carlo Method

“…The article deals with the issue of investment decision-making in enterprises in the territory of the Slovak Republic. The basic principle of the article is the verification of the methodology that was presented in the authors' previous publications [19]. The methodology is aimed at solving the investment decisions of the company when implementing modern software tools.…”

“…This tool requires the identification of risk factors affecting investment projects and, thus, their evaluation criteria. The result of the application of Monte Carlo simulation is the distribution of the probability of these quantities and, subsequently, an easier decision for the investor to accept or reject investment projects based on valuable information about the size of the project's risk obtained by this method [19,36].…”

“…The secondary goal was to integrate the use of new classical and modern economicstatistical methods, which are an effective tools for the sustainability of businesses [1,3,52]. The application verification was based on the methodology presented by us in our published article [19]. The methodology shows two approaches to eliminating risk in enterprises in Slovakia.…”

Risk factors' prediction model for the investment evaluation

“…The article represents a partial output research project, which aims to create and verify a methodology for ensuring the competitiveness and sustainability of companies. The basic approach of the methodology was presented in previous research (Tobisova et al, 2022), which was aimed at solving the issue of investment decisions to implement new software tools into decision-making processes. The essence of the methodology is using the Monte Carlo method implemented in the MS Excel environment and the additional Crystal Ball software tool.…”

“…Within the investment decision-making framework in production enterprises, mentioning the financial point of view is essential, which is usually considered first in practice. Business financing leads to the creation of new tools for financing and securing the needs of the business (Tobisova, 2022;Ključnikov, 2022;Li, 2017). Correct investment decision-making, which is supposed to ensure the viability of the enterprise for many years, must be based on an effective decision and after consideration of all related economic aspects and with the acceptance and determination of an acceptable level of risk (Hwee, 2001;Ristanovic, 2021).…”