A Step-By-Step Guide To Selecting The Right Financial Analysis Software for Ship Investments

Selecting the right financial analysis software for ship investments is vital. Shipowners need to maximize return on equity invested by evaluating all relevant factors to structure and execute the best possible deal. Financial analysis software for ship investments must also be able to take into account the volatility of ship prices and charter rates and the benefits of flexibility (the value of optionality). 

Shipowners always have to deal with the ups and downs of shipping markets.  The dramatic reduction in world trade caused by the global Covid-19 pandemic makes it imperative to manage cash flows and debt exposure; fallback mechanisms like extensions of bank loans must be prepared and presented to lenders and investors.

Microsoft Excel is the most widely used software for financial modelling. Shipowners, shipping banks, debt and equity investors and their analysts can either use Excel to build their cash flow models from scratch or make use of some of the Excel-based software applications like ShipInvest, Invest in Ships or Pacoship. The right financial analysis software for ship finance and investments should save time and provide error-free consistent analysis of key figures and cash flows.

A lot is at stake for every shipping company. Shipping companies must now convince public and private stakeholders about the viability of cash injections from equity investors and negotiate a restructuring of debt with lenders.  Financial analysis tools used correctly can be of great help in this process. You get better reports, and you save time. Ship finance analysis and modelling could also have helped in preparing contingency plans for a shipping company to adapt more quickly to changing circumstances.

Assessing financial software for analysis of ship investments:

Here is a step-by-step guide to selecting the right financial software for ship investments:

 

  1. Check if the software assesses the ship as an investment

Applying the usual financial metrics of land-bound industries to the evaluation of a particular sector of the maritime industry may not produce accurate results. Ships are traded in liquid, transparent, well-reported global markets 24 hours a day.  Financial analysis software for ship investments ship should be able to analyze the investment in a vessel as a marketable financial instrument with features similar to shares, bonds, or traded options:

  • A ship has an asset price and a cash yield.
  • The yield curve for charters reflects forward expectations (rising market, falling market).
  • Charters have different durations, and rates depend on duration (period).
  • Age of ship determines remaining economic life (characteristic similar to the duration for bonds and options).

The software must also be able to analyze the ship investment from a cash flow perspective and be able to reflect real-world conditions in the financial analysis performed and presented:

     CHOICE VARIABLES: 

  • When to buy and sell a ship (“timing”)
  • Type of employment (how long and to whom)
  • Financing (percentage of debt, equity, currency, term)
  • Ship maintenance policy (operating expense, operational performance, residual value)

     GIVEN VARIABLES:

  • State of shipping markets (level and volatility of prices, charter rates)
  • Cost of capital (interest rates, loan margins, cost of equity)
  • Cost of bunkers and lube oils ⇒ Cost of crew
  • Cost of placing insurance

 

  1. Ensure it can analyze the financing required for various types of shipping projects:

Software for financial analysis of shipping investments should be able to analyze multiple types of shipping projects:

  • Newbuilding project
  • Secondhand Purchase
  • Charters of different kinds
  • Charter with purchase options
  • Demolition deals

The software must be able to analyze data and generate presentations concerning a project’s total capital requirement, as well as its debt capacity:

  • What financing do I want?
  • What financing can I get?
  • Analyse and compare alternatives.
  • What option do I choose?
  • What do I need to prepare to present to investors and debt providers?

When shipping companies run into financial difficulties, it is often because financing does not match the cash flow of the deal.

 

  1. Determine if it runs several analyses on the various kinds of investments present in the shipping industry

As the International Handbook of Shipping Finance points out, financing in the shipping industry is continuous. It and covers various phases, from laying out the initial capital, maintaining operations, to creating partnerships. The software has to cover the multi-periods that govern the ups and downs of the shipping industry.

The software application must be able to handle the monitoring of capital that comes from alternative sources. It can do appraisal and budgeting on various levels, from daily, weekly, monthly, to yearly. It must be flexible enough to produce several types of financial statement analysis as well as presentations with charts.

 

  1. Prioritize clear and identifiable software parameters

The dynamics of the volatility of earnings and ship prices sets the shipping industry apart from the land-based investment. The shipping industry is truly global and has its own long, established procedures and contract types. The industry is transparent, with a lot of data available. Ship management can benefit from a wide range of financial software. Check a list of accounting software programs, to see some of what is available. A good software application for financial analysis of ship investment should be able to communicate with other software, including accounting software.  Exchange of data between different software applications can take place easily if the software can import and export data in the Extensive Markup Language format (XML).

 

  1. Opt for an interactive and user-friendly interface that separates input (assumptions) and output (calculated results)

The financial, shipping market data and operational performance metrics must be accessible at any time in a user-friendly dashboard. The software must be able to track expenditures, cash flow, purchases, losses, and revenues. The software should be able to perform sensitivity analysis, simulation (Monte Carlo), stress testing (What If Scenarios) and goal seek.  (Example: What price must a ship be sold for to achieve required return on equity invested?)

Not only finance executives but also the executives in charge of chartering and operations of vessels should be able to monitor how factors, like change in trade regulations or a revision in maritime protocols, impact the figures. The software should be able to combine market data with calculations of individual ships to create analysis with key decisions variables.

Financial Analysis Software

A clear line must also be drawn between input or assumptions and output or calculated results. Input is current data that reflects the financial status of the investment or project moving through its many phases. Output or calculated results should relate to the targets or estimates that the project is expected to fulfil.

Software for financial analysis of shipping investments should also be able to consolidate each ship investment into a fleet.  The software should be able to create various reports that sort all ships in the fleet by different criteria such as a lender, investor, charterer, type of vessels etc.

 

Looking for the best financial software for analysis of shipping investments

This guide gives a clear idea of how to get the most comprehensive financial software for analysis of shipping investments. It can alert you to financial risks and opportunities you might be facing today and give you the information to solve them.

That’s why the demand for this type of software is still rising. Markets and Research Biz say it will enjoy a compound annual growth rate of 8.1% in the next five years, with an overall value of $1.9 billion by 2025.