Performance and Profit Sensitivity to Risk: A Practical Evaluation of the Agro-Industrial Projects Developed by Israeli Companies for the CIS and Eastern Europe countris

38 Pages Posted: 16 Aug 2012 Last revised: 6 Feb 2013

Gregory Yom Din

Open University of Israel - Department of Management and Economics; Faculty of Exact Sciences, Tel Aviv University

Date Written: August 8, 2012

Abstract

International companies take part in many tenders for agro-industrial projects in the Commonwealth of Independent States and Eastern Europe countries. The market for these projects is analyzed and found to be favorable for companies and developers. Major projects developed in recent years are presented and evaluated in terms of financial performance. Additionally, a method of project evaluation by profit sensitivity to risk criterion is proposed. In this method, the approximate formula for profit sensitivity to risk (when basic production and market assumptions change simultaneously) is derived using a cost-volume-profit model. This method allows minimal calculations to explain profit sensitivity and elasticity within the usual indicators of business planning: operational profitability and degree of operating leverage. The consistency of project ranking is examined using Cronbach's alpha and correlation coefficients. The ranks obtained by various performance criteria are found to be consistent with each other, but not with those obtained by profit sensitivity to risk. In terms of elasticity, project profitability is a much stronger influence than the degree of operating leverage on profit sensitivity to risk.

Keywords: agro-industrial project, performance evaluation, profit sensitivity to risk, consistency of ratings, cost-volume-profit

JEL Classification: O13, O22

Suggested Citation

Yom Din, Gregory, Performance and Profit Sensitivity to Risk: A Practical Evaluation of the Agro-Industrial Projects Developed by Israeli Companies for the CIS and Eastern Europe countris (August 8, 2012). Available at SSRN: https://ssrn.com/abstract=2127139 or http://dx.doi.org/10.2139/ssrn.2127139

Gregory Yom Din (Contact Author)

Open University of Israel - Department of Management and Economics ( email )

1 University Road
Raanana, 43107
Israel

Faculty of Exact Sciences, Tel Aviv University

Tel Aviv
Israel
972-46964932 (Phone)

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