What is gross investment?

Hello friends!

I continue the topic of valuation of enterprises according to financial statements. Buy or sell shares? Charts, rumors, market mood — all this is wonderful ... But we are talking about a professional approach. Therefore, I propose to consider an important aspect of the company's activities, on which a trader can and should make an informed decision. Article topic: gross investment.

Gross investment - what is it

What it is

So let's say a pasta factory is running. She has a building with production workshops, in which some equipment is installed: dough mixing machines, molding units, drying cabinets, packaging lines, etc. We also have our own transport for the delivery of products to retail outlets. So, this is all — the main funds. They have their own lifespan.

If they are not repaired, not renewed, then after a while the plant will stop. You need to invest money. This is the gross investment. That is, investments in fixed assets that enable the manufacturer to produce their goods.

Goals and objectives of gross investment

Goal: maintaining the means of production in working condition, maintaining or increasing profits.

Task: the correct ratio of expenses to income received. Why buy new cars if the factory building is falling apart? It doesn't make sense, right?

The value of investments for the country's economy

Development is impossible without capital inflow. And it doesn’t matter what this influx is expressed in: money, technology, healthy and trained people. The more investments in any area of ​​activity, the faster and better the result. With proper management, of course. The country must invest in the most important elements of its economy.

In addition, investments in the state's economy affect the forecasting of its GDP, and, consequently, all domestic processes from social issues to defense capability.

What is net investment

This is what increases the capital stock. Their task is to expand production, commission new capacities, and increase the volume of output. It is the size of net investment that indicates the economic condition of the organization.

Relationship between net and gross investment

It is incorporated in the calculation method. Net investment is the sum of gross investment minus depreciation expenses.

What is included in gross investment

The list is not particularly long:

  • construction or repair of buildings and structures;
  • tangible or intangible assets;
  • equity capital of the company;
  • working capital;
  • new technologies;
  • securities of other companies for profit.

The Importance of Gross Investment

The importance of gross investment in the economy of the state is undeniable. Thus, a decrease in their number leads to a drop in the volume of social production and employment of human resources, and has significant shifts in the structure of the economy and the development of industries. The accumulation of enterprise investment funds, that is, their production potential, has a positive impact on the development of the economy and its individual sectors. However, even significant amounts of attracted funds without obtaining a positive dynamics of its investment does not have a stable positive impact on economic growth. First of all, we are talking about obsolete projects or production facilities, which will definitely lead to a decrease in the share of manufactured products.

In scarlet investments are a clear marker of the growth of the country's economy and reflect the hidden trends of its development. The volume of investments significantly affects the renewal of the economy and avoids protracted crises in it, playing a significant role in the processes of capital formation and the circulation of the money supply.

The difference between gross and net investment 

Gross investment is the broadest concept. It includes the net investment and depreciation expense. Net investments are a form of long-term investments aimed at the development, modernization and expansion of an enterprise. This is gross investment minus funds for the repair and restoration of production assets. Attraction of depreciation funds is necessary to keep the enterprise at the current level. The implementation of net investments is designed to bring additional profit in the long term.

Usage efficiency 

The efficiency of the production use of gross investments is determined using the indicator of profitability of financial investment, which is the ratio of income received and costs incurred. The coefficient allows you to evaluate the profitability or unprofitability of investments.

Checkout The financial efficiency of investment reflects the profitability of the investment project, that is, the ratio of income received and costs incurred. To evaluate it, the indicator of net present value for the project is calculated, which is defined as the difference between the inflow and outflow of money in each settlement period (year, month), reduced to the current value (adjusted for inflation).

If the amount of net present value is positive, then the investment is worthwhile. If they represent a negative value, then it is better to reject such an investment project. Attracting money and the volume of investment is regulated with the help of a competent strategy, selection of effective sources of financing.

Investment strategy factors are important indicators of the formation of a commercial organization. With the correct calculation of gross investments, a material base is created for the further development of the enterprise. At the private business level, increasing turnover, productivity and profit growth depend on smart investment. Any additional investment is carefully calculated.

Why Calculate Gross Investments

Gross investments allow you to evaluate the effectiveness of the organization. If for the period under review they are more than the amount of depreciation, then the company is developing dynamically. In the reverse situation, its resources are insufficient for development.

It is important to take into account the ratio of the amount of available profit and gross investment. If large profits are achieved through small real investments, the company is moving in the right direction. Determining the value of gross investment is also important for the country's economy, as well as when calculating GDP. Poor investment dynamics leads to a decrease in the value of the national currency in relation to the currency of other states, where there is an increase in net investment.

Calculation of gross investment (formula)

So gross investment is taken into account when calculating GDP by expenditure:

Y \u003d C + G + VI + Xn,

C — consumer spending; G — government spending; ВI — gross investments; Xn is the cost of net exports. The ratio in the formula can be positive or negative: when BIt > At, the economy develops; when BIt < At the economy is in stagnation, internal resources are not enough even for the reproduction of capital. Similarly, for an individual enterprise, this ratio indicates its development.

main sources

They can be very different: the use of own funds, material values ​​received from third parties. Credit products, budget funds. And, of course, the placement of securities on stock exchanges.

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