The farm investment analysis though similar to farm management analysis but itsdifferent in terms of focus. The farm income or farm management analysis focus on the current performance of farm and analysis period is usually current year and uses current prices. Capital is treated by considering depreciation. Off farm income is excluded in farm management income analysis, performance criteria is returns to capital and labour engaged on the farm and undiscounted measures are used as tool. In contrast, the farm investment analysis has main objective to assess the attractiveness of proposed investment to the project entities, the period of analysis is useful life of the project, analysis is carried out in terms of constant prices (although allowance may have to be given for inflation), cash and non cash off farm income is included and also the value offarm produce consumed, performance criteria is return to additional resources used and discounted measures like Net Present Value.Internal Rate of Retum, Benefit Cost Ratio are used as tools of analysis.
Farm investment analysis is the starting point for financial and economic analysis of the project. A group of investment analysis are performed on the investment "pattern of model farms and compared with the anticipated situation without the project.
Since in farm investment analysis, the principle of discounted cash flow is followed, a suitable accounting convention which assumes that every transaction falls at the end of the accounting period is adopted. This is achieved if we consider that initial investment takesplace at the end of year 1 of the project, regardless of whether it will actually take a full year or only a few weeks. Year 2, then, is the"first accounting period in which increases in operating cost and investment benefits occur. Thus, the dividing lines b~tween the end of the initial investment period and the beginning of the incremental production operations coincides exactly with the dividing line between year 1 and 2 of the project. Taking account of the fact that developing farm plan, construction work, purchasing of new assets and inputs and arranging loans may take several months to a year period, reserving year 1 for investment is not unrealistic.However, we should remember that this is an accounting convention and is not related with the real occurrence of events.