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Financial Analysis and Modelling of Ship Investments

Financial modelling of ship investments can quantify downside risk and upside potential before a decision to invest is made, and also be used as a tool to monitor risks and performance during the investment period. A good financial model is also an excellent tool for communicating opportunities or potential problems to management, lenders and investors. This allows for opportunities or potential problems to be identified early and plans for alternative actions to be prepared in advance. Meaningful financial analysis and modelling of ship investments can, therefore, contribute to better management of risks and hence better risk-adjusted returns.

Some of the questions we may want answers to are:

• How much capital is needed for the project?

• What is the debt capacity of the project?

• What is the financing structure that maximises the Net Present Value (NPV) of equity invested?

• What is the forecasted cash impact of financing alternatives, chartering policies and market developments?

• What is required to meet the target return on equity?

• How long will current cash last under various scenarios?

A good financial model has the following characteristics:

1. Key input parameters are clearly identified.

2. The model uses formulas to automatically adjust for changes in input parameters.

3. It has a user-friendly, interactive interface, and clearly separates input and output cells (one common practice is to colour code input cells ).

4. The model is dynamic, robust, cover multi-periods and produces all the important financial output metrics including NPV and Internal Rate of Return (IRR).


Chapter 14 “Financial Analysis and Modeling of Ship Investments”, is written by Lars Patterson

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User Lead Development

The first commercial version of Pacoship has now been released, and we have started to receive comments and suggestions for further development of Pacoship as a tool for better financial analysis and reporting of ship investments.

We want continuing development of Pacoship to be user lead, and here are some of the things that feedback so far has told us that users of Pacoship want us to do:

• Develop a more elegant design of the user interface.

• Add reporting ability to add each single ship cash flow to create a company or fleet cash flow.

• Add ability to use other currencies than USD.

Work on these improvements has started.

We are also preparing some free webinars to help you make good use of the many features that Pacoship already offers.

1. Financial Analysis of Ship Investments

2. Introduction to Pacoship

I really believe the shipping industry will benefit from a software application for Financial Analysis of Ship Investments that is developed by professionals in dialogue with each other. Your questions, comments and suggestions are very much appreciated. They become even more valuable when shared with others. Please post your questions, comments or suggestions as a comment here on Linkedin or in the Pacoship User Forum. The link to the forum is: