An investment is the long-term commitment of financial resources in tangible or intangible assets. The targeted use of the funds raised by the financing is the focus of the investment. The balance sheet shows the use of funds on the assets side and the source of funds on the liabilities side. The investment decisions have a direct influence on the amount of fixed assets and have an indirect effect on the amount of current assets. Defined by digopaul, the aim of the investment is to generate profits or income surpluses.
Types of investments
Investments are differentiated according to their object, a rough breakdown is also possible according to start-up, net, gross and expansion investments. Depending on their subject, a distinction is made between tangible investments, intangible investments and financial investments. Intangible investments are made for licenses, patents or research and development. Be according to their purpose
- Start-up investments required in starting a business
- Gross investment as the sum of replacement and net investments
- Net investments as effective new investments that are incurred after deducting depreciation and are used to finance the replacement of existing means of production
- Replacement investments as a replacement for capital goods worn out in the production process
- Reinvestments that arise due to wear and tear or technical progress in order to maintain capacity and replace wear and tear
- Investment in expansion to work with more means of production
- Investments in rationalization to produce more with fewer machines
- Divestments as the release of funds to generate sales
differentiated. Research investments, manufacturing investments and sales investments can be differentiated according to function. A direct investment is an investment in company names abroad and a form of capital export.
Decision on rationalization and expansion investments
If rationalization or expansion investments are to be made in a company, it must be checked whether they are useful for the operational processes. The effects on the operational processes must be recorded. A comparison of the new or future business process model with the existing business process model is necessary. A change matrix is used to record the expected effects on each level. Quantity, quality, space and time are compared with one another, the production factors used are used as input factors and the products as results are used as output factors. Immaterial, social and ecological effects can also be used as output factors. Changes are considered in terms of quality, quantity, space and time. Once the investment effects have been recorded, they must be provided with their monetary equivalents. Only then can they be included in the investment calculation. Investments represent central decisions in the operative business and have a long-term strategic importance in terms of capital intensity and long-term capital commitment. An investment is difficult to reverse.
Financial indicators for investments
Financial indicators allow statements to be made about the investment situation in a company. The plant intensity, the stock intensity and the investment quota are important. The investment intensity is also referred to as the investment quota and represents the ratio of fixed assets to the balance sheet total of a company. The investments tie up capital over the long term and cause considerable fixed costs. A high investment quota reduces the ability of a company to adapt to economic fluctuations. The lower the investment quota, the more flexible a company is. The stock intensity is also referred to as the stock quota and expresses the capital commitment in stocks of raw materials, auxiliary materials, supplies as well as semi-finished and finished products.
A high inventory intensity represents a high storage risk due to the drop in prices. The investment rate is an important key figure from an economic point of view, it represents the share of investments in the gross domestic product. An investment decision is always a complicated process in a company. Economic criteria such as capital employed, useful life and profitability must be taken into account. They have to be summarized in the investment calculation in order to receive a decision recommendation. Current laws, interdependencies in other areas and technical feasibility also play a role in investments. In order to assess the advantageousness of an investment, a real option analysis must be carried out, it enables the determination of an investment with the means of an option price theory. Extensive research is required in the company if an investment is to be made. It must enable a significant improvement compared to the previous state.
