A life cycle cost analysis calculates the cost of a system or product over its entire life span.
The analysis of a typical system could include costs for:
- research and development,
- Cost of replacement,
- disposal or salvage.
This cost analysis depends on values calculated from other reliability analyses like failure rate, cost of spares, repair times, and component costs.
Sometimes called a "cradle-to-grave analysis", or "Womb-to-Tomb"
A life cycle cost analysis is important for cost accounting purposes. In deciding to produce or purchase a product or service, a timetable of life cycle costs helps show what costs need to be allocated to a product so that an organization can recover its costs. If all costs can not be recovered, it would not be wise to produce the product or service.
It reinforces the importance of locked-in costs, such as R&D.
It offers three important benefits:
- All costs associated with a project/product become visible, especially: upstream, R&D; downstream, customer service.
- It allows an analysis of business function interrelationships. Low R&D costs may lead to high customer service costs in the future.
- Differences in early stage expenditure are highlighted, enabling managers to develop accurate revenue predictions.
A typical quantitative analysis would involve the use of a statement where an easy comparison of costs can be seen by having the different products a company produces next to each other.
Financial analysis is the analysis of the accounts and the economic prospects of a firm or project.
Such an analysis has the objective to assess the firm's:
- performance, for the management to improve it,
- solvency, so as for a bank or a supplier to grant a credit,
- potential value to decide an investment or divestment. Then it is called fundamental analysis and is linked to business valuation and stock valuation
- Financial analysts, among other tasks, use to compare financial ratios (of solvency, profitability, growth...)
- between several periods (the last 5 years for example)
and between similar firms.
Those ratios are calculated by dividing a (group of) account balance(s), taken from the balance sheet and / or the income statement, by another, for example :
Net profit / equity = return on equity
Gross profit / balance sheet total = return on assets
Stock price / earnings per share = P/E-ratio
Karmanya’s team of professionals can help a company not just set up business but help them analyze the viability of the project and how to derive benefit of the business.
We offer services to not just core businesses but service sector industries as well. Our experts have over 35 years of experience to help you in cost and financial matters.