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What Is an Investment Scenario?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 23 November 2016
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An investment scenario is a term that is used to describe the projection of the merits and demerits of potential investment opportunities. The investment scenario can be applied to a potential investment, or it may be applied retroactively to an existing range of investments with a view of analyzing the short-term and long-term profitability of such investments. In order words, the investment scenario is used to gain a well-rounded view of an investment. The investment scenario may be applied to a market, an industry or other parameters for calculating the profitability of the proposed investment.

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For example, a company that is seeking to diversify by opening subsidiaries in other countries might apply the principles of an investment scenario toward the analysis of the various countries with a view toward arriving at the best alternative out of the available choices. This company might narrow down the potential countries to determine the best country for investment by considering a lot of factors, including the type of product the company produces or the type of service it offers with the intention of discovering if there is a market for it in that country. Assuming the company is a fast food restaurant, it will analyze the potential for consumers in the country to patronize its fast food products, something that can be achieved through a comprehensive market survey. Other factors that will be included in the analysis of the scenario for this particular company will include the type of infrastructure that is available in the country, the ease of obtaining the necessary raw materials, and the tax regime. At the end of the investment scenario analysis, the company will be able to determine the particular country that offers the best investment opportunity.

Another method for using an investment scenario analysis is to scrutinize the industry in which a company is trying to invest. For example, the investor could analyze the tourism industry in a particular area in order to discover how progressive that industry is before making a decision to buy shares in a hotel. Those who already have a range of investments in the form of items like stocks and bonds may also use the investment scenario to find out how their investments are performing.

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