In order to increase production capacity, technical development, and improve the state of the material base, enterprises need to make certain cash injections, since it is not economically efficient to take funds from working capital for these needs, and then you have to look for and use third-party financial investments in the form of gross investments.
Definition
Gross investment - the total amount of funds that investors invest in new construction, major repairs of structures, buildings, the acquisition of items and means of labor, intangible assets and inventories. They are directed to the maintenance and growth of fixed capital, stocks. With their help, the normal functioning of the enterprise, financial stability, and an increase in the profitability of economic entities are ensured.
Gross investment is the total amount of an investor's investments in any investment object. And this is regardless of the form in which these investments were made and on what part of the object they were spent.
Gross domestic investment (GVI) - investments of the country's inhabitants in the products of their state and their expenses for the purchase of imported goods. VVI are often expressed in monetary terms or as a percentage of GDP.
Structure
Gross investments include depreciation, which is investment resources that compensate for the depreciation of fixed assets, the cost of repairs, restoration, as well as net investments, i.e. capital investments in work in progress and inventories.
Net investment characterizes the change in the value of fixed capital after the amount of its depreciation has been accrued.
Fixed capital, as the main component of gross investment, includes:
- restoration of used funds as a result of moral and physical wear and tear;
- renewal of production facilities - replacement of equipment, change of production technology to a more progressive one;
- reconstruction, modernization of production;
- housing construction costs;
- costs for licenses, trademarks, patents, property rights, inventions, know-how.
Gross investment is a cost of a socio-economic nature, i.e. investment in human capital: staff development, improvement of the motivation system, which, in turn, affects the increase in productivity and profitability of the enterprise.
Calculation
Gross investment is equal to:
- Vn = An + Chn, where
Вн - gross investments in the n-th year;
An - depreciation in the n-th year;
Chn - net investment in the n-th year.
If the value of Vn is less than An, then there is a decrease in production potential, as a result, a decrease in the volume of output (speaking of the macro level, we can say that the state "eats" its capital, similarly with the level of the enterprise).
When Bn equals An, then there is no economic growth and the production potential does not change (the state/enterprise stands still).
In the event that the volume of gross investments is greater than depreciation deductions, the economy is at the stage of development, since a wide renewal of its production potential is ensured (the state / enterprise has a developed economy).
Sources
The sources of gross investment are:
- own funds of investors, individuals, co-investors;
- borrowed funds: bank loans, funds of other financial organizations;
- state budget funds;
- sinking funds;
- funds from participation in trading on stock exchanges.
The main investor, in order to reduce investment risks for the project, invites other interested co-investors to cooperate.
Public funds are spent on gross investment when the project is important to the government. Everything happens in the form of a public private partnership - the transfer by the state into private hands of the rights to deposits or land, state-owned enterprises.
Efficiency
For an enterprise, gross investments are profitable if they give a calculated profit at the end of the period of implementation of the planned investment project.
In order to increase the efficiency of investments, it is necessary to pursue a competent policy of reproduction of fixed capital and funds that guarantee the restoration of fixed production assets, their quantitative composition and high-quality technological organization.
The efficiency of using gross investments depends on their structure: composition, direction of use, source of formation. But the fundamental criterion is profitability, it is this that determines the priority of investments.
At the macroeconomic level, overinvestment is inflation, and underinvestment is deflation. Such imbalances in the economy are regulated by an efficient system of taxation, government spending, fiscal and monetary policies.
Role in economic development
The role of investment for producers is as follows - enterprises achieve an increase in productivity, profit growth, a solid business foundation, individual income by effectively attracting additional capital in the form of investments that reproduce fixed assets, increase stocks.
On state level gross investment shows the state of the economy, the level of GNP, characterizes how much the products of domestic manufacturers are in demand, whether investors want to invest in it, whether it is profitable. Based on these data, the state should create optimal conditions for manufacturers so that their products are in demand, both in domestic markets and abroad. To do this, the government must provide benefits, subsidies, subsidies, and regulate taxation.
Gross investments play a role in the economic development of the country, in building a modern high-tech material and technical base. Also, one cannot do without investments in the "knowledge economy", the so-called sphere of education, science, biotechnology, information technology, health care.
Investments- these are savings that are used for long-term investments by public and private capital, as well as outside it, with the aim of making a profit.
Directions: new construction, technical re-equipment, reconstruction and expansion of existing enterprises, additional purchases of raw materials and materials
Sources: Own sources of investment are all assets of the company that are its property and participate in its investment activities. (net profit of the organization, authorized capital, depreciation) Internal sources of investment are the organization's own funds, both financial and others, used to finance and invest in their own production. Also real estate, transport, materials, qualified labor force. External sources of investment, these are funds raised from private investors, by issuing securities of the organization, these are borrowed funds aimed at developing production. (Foreign loans) Gross Investment- the cost of replacing old equipment (DEMORTIZATION) + increase in investment for the expansion of production. Net investment- gross investment minus the amount of depreciation of fixed capital. If net investment is positive, then the economy is developing. If net investment is zero (gross costs and depreciation are equal), then the economy is in a static state. If net investment is negative (gross costs are less than depreciation), this indicates a declining business activity.
24. Investments and savings: general, differences, contradictions.
An important component of aggregate demand is investment. Investments are understood as the expenses of enterprises aimed at expanding production, improving the quality of products. Investments are long-term investments of public or private capital in various industries both within the country and abroad for the purpose of making a profit.
The source of investment is savings. The problem is that savings are carried out by some economic agents, while investments can be made by completely different groups of persons or economic entities. The savings of enterprises are also a source of investment. Here "savers" and "investor" coincide. However, the role of household savings is very significant, and the discrepancy between the processes of savings and investment can lead the economy into a state of disequilibrium.
Investment directions:
Construction of new industrial buildings and structures;
Procurement of new equipment, machinery and technology;
Additional purchases of raw materials and supplies;
Construction of housing and social facilities.
Accordingly, these areas are distinguished:
Investments in fixed assets;
Investments in inventory;
Investments in human capital.
There are also gross, net, autonomous and induced investments.
Gross investment is the cost of replacing old equipment (depreciation) + an increase in investment for expanding production.
Net investment is gross investment minus depreciation of fixed capital.
If net investment is positive, then the economy is developing.
If net investment is zero (gross investment and depreciation are equal), then the economy is in a static state.
If net investment is negative (gross costs are less than depreciation), then this indicates declining business activity.
Autonomous investments are investments driven by innovations caused by scientific and technical progress. They are not related to the growth of national income. Most often, they themselves become the cause of the increase in ND.
Induced investment is capital investment aimed at the formation of new production capacities, the reason for the creation of which is an increase in demand for material goods and services.
This type of investment is necessary if the increased demand for products is not met by increasing the intensity of operation of existing equipment. Investment needs are in the form of investment demand.
Investment demand is the demand of entrepreneurs for means of production to restore depreciated capital, as well as to increase it.
Factors that determine investment demand include:
Expectation of the rate of return;
bank interest rate.
The dependence here is as follows: if the expected rate of return is high, then investments will grow. The interest rate is the price a firm must pay to borrow money.
If the expected rate of return (say 10%) exceeds the rate of interest (say 7%), then the investment will be profitable, and vice versa.
The investment process depends on many factors. First, it depends on the expected rate of return.
Secondly, when making decisions, the investor always takes into account alternative possibilities, and the interest rate level will be decisive here.
Thirdly, investments depend on the level of taxation. Too much high level taxation does not encourage investment.
Fourth, the investment process responds to inflation rates. In conditions of inflation, when costs represent significant uncertainty, the processes of real investment become unattractive.
Consumption is the lifeblood of society. The level of consumption depends on many factors, but above all on family income. The main determinant of consumption is personal disposable income, which is divided into consumption and savings. Consequently, in addition to income, consumption is also affected by taxes, rising prices, and rising deductions for social insurance propensity to save.
Savings can be defined as that part of income that is not used for consumption. Together, consumption and savings together make up the disposable income of the population, i.e. income after taxes.
There are qualitative differences between consumption and saving. Consumption is focused on meeting the current needs or needs of the population, and savings is aimed at increasing consumption in the future by reducing current consumption.
The level of savings depends on the income level of the population. With an increase in income, savings rise, with a decrease, they fall.
25. Differences between classical and Keynesian equilibrium models of investment and savings.
Classical and Keynesian models of the equilibrium of investment and savings
In macroeconomics, there are two approaches, two schools, two directions in the interpretation of macroeconomic processes and phenomena: classical and Keynesian (and in modern conditions, respectively, neoclassical and neo-Keynesian) and therefore there are two macroeconomic models that differ from each other in the system of prerequisites, model equations, theoretical conclusions and practical recommendations.
The classical (and neoclassical) model of economic equilibrium considers, first of all, the relationship between savings and investment at the macrolevel. An increase in income stimulates an increase in savings; turning savings into investments increases output and employment. As a result, incomes rise again, and at the same time, savings and investments. Compliance between aggregate demand and aggregate supply is ensured through flexible prices, a free pricing mechanism. According to the classics, the price not only regulates the distribution of resources, but also provides a "decoupling" of non-equilibrium (critical) situations. According to classical theory, every market has one key variable (price, percentage, wage) to ensure market equilibrium. The equilibrium in the commodity market (through the supply and demand of investment) is determined by the rate of interest. In the money market, the determining variable is the price level. The correspondence between supply and demand in the labor market regulates the value of real wages.
The classics saw no particular problem in turning household savings into firms' investment spending. They considered government intervention unnecessary. But between the deferred expenses (savings) of some and the use of these funds by others, a gap can (and is) emerging. If part of the income is set aside in the form of savings, then it is not consumed. But for consumption to rise, saving must not lie idle; they must be transformed into investments. If this does not happen, then the growth of the gross product is hampered, which means that incomes are decreasing, demand is shrinking.
The picture of the interaction between savings and investment is not so simple and unambiguous. Savings break the macro-equilibrium between aggregate demand and aggregate supply. Relying on the mechanism of competition and flexible prices under certain conditions does not work.
As a result, if investment is greater than savings, there is a danger of inflation. If investments lag behind savings, then the growth of the gross product is hampered. There are three real markets in the classical model: the labor market, the loan market, and the goods market.
Figure 1. Market for borrowed funds in the classical model.
We are interested in the market for borrowed funds - this is the market in which investments I and savings S “meet”, and an equilibrium interest rate R is established. Firms demand for borrowed funds, using them to buy investment goods, and households supply loans your savings. Investments depend negatively on the interest rate, since the higher the price of borrowed funds, the lower the amount of investment costs of firms, the investment curve therefore has a negative slope. The dependence of savings on the interest rate is positive, since the higher the interest rate, the greater the income that households receive from lending their savings. Initially, equilibrium (investment = savings, i.e. I1 = S1) is established at the interest rate R1. But if savings increase (the savings curve S1 shifts to the right to S2), then at the same interest rate R1, part of the savings will not generate income, which is impossible if all economic agents behave rationally. Savers (households) would prefer to receive income on all their savings, even if at a lower interest rate. The new equilibrium interest rate will be set at R2, at which all borrowings will be fully used, since at this lower interest rate, investors will take out more loans and the investment will increase to I2, i.e. I2 = S2. Equilibrium is established, and at the level of full employment of resources.
Equilibrium was also established in the commodity market, and in the labor market, and not only in each of the markets, but there was also a mutual balancing of all markets with each other, and, consequently, in the economy as a whole.
From the provisions of the classical model, it followed that protracted crises in the economy are impossible, and only temporary imbalances can occur, which are gradually eliminated by themselves as a result of the market mechanism - through the mechanism of price changes. But at the end of 1929, a crisis broke out in the United States that engulfed the leading countries of the world, which lasted until 1933 and was called the Great Crash or the Great Depression. This crisis showed the failure of the provisions and conclusions of the classical macroeconomic model. At the same time, the inconsistency of the provisions of the classical school is not that its representatives, in principle, came to the wrong conclusions, but that the main provisions of the classical model were developed in the 19th century and reflected the economic situation of that time, i.e. era of perfect competition.
But these provisions and conclusions did not correspond to the economy of the first third of the twentieth century, feature which is imperfect competition. The main premises and conclusions of the classical school were refuted by the English economist John Maynard Keynes (1883-1946), having built his own macroeconomic model. What made Keynes famous was his work General theory employment, interest and money" (1936), in which he raised the question of the need for state intervention in the economy in order to correct its shortcomings.
At the forefront Keynes put the problem of "effective demand", consumption and accumulation. He put forward macroeconomic method research, i.e. study of dependencies and proportions between macroeconomic values - national income, savings and savings.
Figure 2. Investment and savings in the Keynesian model.
The interest rate, according to Keynes, is formed not in the loan market as a result of the ratio of investment and savings, but in the money market - according to the ratio of money demand and money supply. Therefore, the money market becomes a full-fledged macroeconomic market, a change in the situation in which affects the change in the situation in the commodity market. Keynes justified this position by saying that at the same level of interest rates, actual investment and savings may not be equal, since investments and savings are made by different economic agents that have different goals and motives for economic behavior. Firms make investments, while households make savings. The main factor determining the amount of investment spending, according to Keynes, is not the level of the interest rate, but the expected internal rate of return on investment, what Keynes called the marginal efficiency of capital. The investor makes an investment decision by comparing the value of the marginal efficiency of capital, which, according to Keynes, is the subjective assessment of the investor (in essence, we are talking about the expected internal rate of return on investment), with the interest rate. If the first value exceeds the second, then the investor will finance the investment project, regardless of the absolute value of the interest rate. (Thus, if the investor's assessment of the marginal efficiency of capital is 100%, then the loan will be taken at an interest rate of 90%, and if this estimate is 9%, then he will not take a loan even at a rate of 10%). And the factor that determines the amount of savings is also not the interest rate, but the amount of disposable income (Recall that RD = C + S). If a person's disposable income is low and barely enough for current expenses (C), then a person will not be able to save even at a very high interest rate. (To save, you must at least have something to save). Therefore, Keynes believed that savings did not depend on the interest rate and even noted that there could be an inverse relationship between savings and the interest rate if a person wanted to accumulate a fixed amount over a certain period of time. So, if a person wants to secure an amount of $10,000 for retirement, he must save $10,000 annually at an interest rate of 10%, and only $5,000 at an interest rate of 20%.
Since savings depend on the interest rate, their graph is a vertical curve, and investments are weakly dependent on the interest rate, so a curve with a slight negative slope can be depicted. If savings increase to S1, then the equilibrium rate of interest cannot be determined, since the investment curve I and the new savings curve S2 do not intersect in the first quadrant. This means that the equilibrium interest rate (Re) should be sought elsewhere, namely, in the money market (according to the ratio of money demand and money supply).
Keynes argued that with an increase in employment, the national income rises and, consequently, consumption increases. But consumption grows more slowly than incomes, because as incomes rise, people's desire to save intensifies. "The basic psychological law," writes Keynes, to the extent that income increases. The latter is expressed in a decrease in effective (actually presented, and not potentially possible) demand, and demand affects the size of production and the level of employment.
26. Problems of balance of investments and savings. Model IS
Model "IS" ("investment-savings")
The relationship between savings, investment, the level of interest and the level of income can be graphically represented as follows: (Fig. 18.12).
This graph shows the "IS" model, i.e. "investment-saving" ("investment-savings").
What do these curves illustrate?1 The "IS" model allows you to show simultaneously the relationship between four variables: savings, investment, interest and national income. Using this model, one can understand the equilibrium conditions in the real market, i.e. the market for goods and services. After all, the equality of I and S is the condition of this equilibrium.
1 We assume that the savings and investment functions are linear, so the savings and investment graphs, as well as the IS graph, are presented as straight lines. However, we will traditionally use the term "curve", given that the linear functions of savings, investments, etc. can be represented as a special case of non-linear ones.
Rice. 18.12. Model "IS" "investments-savings" Let's start the analysis with the IV quadrant. This shows the inverse relationship between investment and the real interest rate that we know. The higher r, the lower I. In this case, the level r0 corresponds to an investment of I0. Next, we turn to the third quadrant. The bisector emanating from the origin of the coordinate axes of the III quadrant is nothing more than a reflection of the equality that has been repeatedly mentioned, i.e. I \u003d S. It helps us find such a value of savings that is equal to investments: I0 \u003d S0. Then we examine the II quadrant. The curve presented here is the savings schedule we already know, because S depends on real income (Y). Level S() corresponds to the amount of real income Yo. And, finally, in the I quadrant, knowing the level of r0 and Yo, you can find the point IS0.
If the rate of interest rises, then the following changes will occur (again, we examine quadrants IV, III, II and I): an increase in the interest rate from the level r0 to r1 will lead to a decrease in investment, i.e. to the level I1. This corresponds to the smaller savings S1 formed with a smaller amount of income K, . Therefore, now you can find the point IS1 Through the points IS0 and IS1 you can draw the curve IS.
So, the IS curve shows various combinations between the interest rate and national income in an equilibrium between savings and investment. This is not a functional relationship, in the sense that income (Y) is not an argument, but the interest rate (r) is a function. It is important to understand that any point on the IS curve reflects the equilibrium level of savings and investment (a balanced market for goods) under various combinations of income and interest rates. This is natural, since the equilibrium condition in the real market (market of goods) is the equality I = S.
The construction of the IS curve has great importance to understand the problems of macroeconomic equilibrium.
27. Determination of the equilibrium level of national income based on income and expenditure Model "National Income - Total Expenditure". Keynesian cross.
Of great interest is the Keynesian model "national income - total spending". This model (Fig. 8) was called the "Keynesian cross" (by analogy with the "Marshallian cross"). When analyzing it, Keynes proceeded from the fact that both personal consumption (C) and productive consumption ("investment - I") should be taken into account.
Rice. 8. "Keynesian Cross"
If society, argues D. Keynes, does not expect good prospects for the development of the economy, then entrepreneurs will not expand production, and savings will tend to zero. Investment is needed to revive the economy. If they appeared, then the national income will increase from S0 to N, and the equilibrium point will move from E0 to E (see Fig. 8). According to Keynes, it is the state that stimulates activity, government spending (G) increases - in this case, the equilibrium will move from E to E1, and the production of national income will also increase (to point N1). This growth in national income will continue up to the level of full employment, which is achieved by adding total expenditures and net export earnings (E2). In this case, the national income will take the form N2. Government intervention brings the economy closer to full employment (FF).
Thus, the Keynesian equilibrium model can be expressed by the formula C + I + G + Xn, where C is consumption, I is investment, G is government spending, Xn is net exports.
28. Autonomous spending multiplier. The paradox of thrift.
The autonomous expenditure multiplier is the ratio of the change in equilibrium GNP to the change in any component of autonomous expenditures.
where m is the autonomous spending multiplier; ∆Y - change in equilibrium GNP; ∆A - change in autonomous expenses, independent of income dynamics.
The multiplier shows how many times the total increase (decrease) in total income exceeds the initial increase (decrease) in autonomous spending. A single change in any component of autonomous spending generates a multiple change in GNP.
If autonomous consumption increases by ∆Ca, then this increases total expenditure and income (Y) by the same amount, which in turn causes a secondary increase in consumption by MPC*∆Ca. Further, the total expenses and income increase again by the value of MPC*∆Ca, etc. according to the scheme of circulation "income-expenses".
∆Ca ═› AD ═› Y═› C═› AD ═› Y ═› C, etc.
The total income repeatedly reacts to the growth of autonomous expenses. this means that relatively small changes in magnitude can cause large changes in employment and output levels.
The multiplier is thus a factor in economic stability that amplifies fluctuations in business activity caused by changes in autonomous spending. Therefore, one of the main tasks of fiscal policy is to create a system of built-in stabilizers for the economy, which would make it possible to weaken the multiplier effect by reducing the relative MPC (marginal propensity to consume).
A recessionary gap is the amount by which aggregate demand (expenditures) must increase in order to raise the equilibrium GNP to the non-inflationary level of full employment.
If the actual equilibrium output Y0 is below the potential Y*, then this means that aggregate demand is inefficient, i.e. total spending is insufficient to ensure full employment of resources (although the equilibrium AD = AS is reached).
Insufficiency has a depressing effect on the economy. In order to overcome the recessionary gap and ensure full employment of resources, it is necessary to stimulate aggregate demand and “move” the equilibrium from point A to point B. In this case, the increment in total equilibrium income will be:
∆Y= recessionary gap value * autonomous spending multiplier value.
The inflationary gap is the amount by which aggregate demand (expenditure) must fall in order to bring the equilibrium GNP back to the non-inflationary level of full employment.
If the actual equilibrium level of output Y0 is greater than the potential Y**, then this means that total spending is excessive. The excess of AD causes an inflationary boom in the economy: the price level rises because the PPs cannot expand production adequately to the growing demand (resources are exhausted). Overcoming the inflationary gap involves curbing aggregate demand and moving the balance from point A to point C (full employment of resources). In this case, the reduction in the equilibrium total income will be:
∆Y= - the value of the inflationary gap * the value of the autonomous spending multiplier.
The Paradox of Thrift(eng. paradox of thrift, eng. paradox of saving) - a paradox in economics, described by American economists Waddill Catchings (eng. Waddill Catchings) and William Foster (eng. William Trufant Foster) and studied, in particular, by John Maynard Keynes and Friedrich von Hayek..
The paradox is formulated as follows: "The more we save for a rainy day, the faster it will come." If everyone starts saving during an economic downturn, then aggregate demand will decrease, which will lead to a decrease in wages and, as a result, a decrease in savings. That is, it can be argued that when everyone saves, this should inevitably lead to a decrease in aggregate demand and a slowdown in economic growth.
Gross investment- directed to the maintenance and increase of fixed capital (fixed assets) and stocks. They are made up of depreciation, which is the investment resources necessary to compensate for the depreciation of fixed assets, their repair, restoration to the previous level that preceded production use, and from net investment, i.e. capital investment in order to increase fixed assets for the construction of buildings and structures , production and installation of new, additional equipment, renovation and improvement of existing production facilities.
At the micro level, investment plays a very important role. They are necessary to ensure the normal functioning of the enterprise, a stable financial condition and an increase in the profits of an economic entity.
A significant part of the investments is directed to the socio-cultural sphere, in the branches of science, culture, education, healthcare, physical education and sports, computer science, environmental protection, for the construction of new facilities in these industries, the improvement of the equipment and technologies used in them, and the implementation of innovations. There are investments in people and human capital. This is an investment primarily in education and health care, in the creation of funds that ensure the development and spiritual improvement of the individual, strengthening people's health, and prolonging life.
The effectiveness of the use of investments largely depends on their structure.
The structure of investments is understood as their composition by types, by direction of use, by sources of financing, etc.
Profitability is the most important structure-forming criterion that determines the priority of investments.
Non-state sources of investment are aimed at profitable industries with a fast capital turnover. At the same time, sectors of the economy with low profitability of invested funds remain not fully invested.
Overinvestment leads to inflation, while underinvestment leads to deflation.
These extremes of economic policy are managed through an effective strategy in the areas of taxes, public spending, monetary and fiscal measures implemented by the government.
In the system of reproduction, regardless of its social form, investments play the most important role in the renewal and increase of productive resources, and, consequently, in ensuring certain rates of economic growth.
In the representation of social reproduction as a system of production, exchange and consumption, investments relate to the first stage of production and constitute the material basis for its development.
Net investment- this is gross investment minus funds used for reimbursement (depreciation).
Investments are long-term investments of capital in the economy in order to generate income.
All enterprises in one way or another are connected with investment activity. Decision-making on investment projects is complicated by various factors: the type of investment, the cost of the investment project, the multiplicity of available projects, the limited financial resources available for investment, the risk associated with making a particular decision. In general, all solutions can be classified as follows.
Classification of common investment decisions:
1. Mandatory investments, then the network is those that are necessary for the firm to continue its activities:
a) Harm reduction solutions environment;
b) Improvement of working conditions to state standards.
2. Solutions aimed at reducing costs:
a) Solutions to improve the applied technologies;
a) To improve the quality of products, works, services;
c) Improving the organization of labor and management.
3. Solutions aimed at expanding and updating the company:
a) Investments in new construction (construction of facilities that will have the status legal entity);
b) Investments in the expansion of the company (construction of facilities in new areas);
c) Investments for the reconstruction of the company (construction and installation work on existing areas with partial replacement of equipment);
d) Investments in technical re-equipment (replacement and modernization of equipment).
4. Decisions on the acquisition of financial assets:
a) Decisions aimed at the formation of strategic alliances (syndicates, consortiums, etc.);
b) Decisions on the absorption of firms;
c) Decisions on the use of complex financial instruments in capital transactions.
5. Decisions on the development of new markets and services;
6. Decisions on the acquisition of intangible assets.
The degree of responsibility for the adoption of an investment project within a particular direction is different. So, if we are talking about replacing existing production capacities, the decision can be made quite painlessly, since the company's management clearly understands the volume and with what characteristics new fixed assets are needed. The task becomes more complicated when it comes to investments related to the expansion of the main activity, since in this case it is necessary to take into account a number of new factors: the possibility of changing the position of the company in the goods market, the availability of additional volumes of material, labor and financial resources, the possibility of developing new markets, etc. d.
Obviously, the question of the size of the proposed investment is important. Thus, the level of responsibility associated with the adoption of projects worth $100,000 and $1 million is different. Therefore, the depth of the analytical study of the economic side of the project, which precedes the decision, should also be different. In addition, in many firms, it is becoming common practice to differentiate the right to make decisions of an investment nature, i.e. the maximum amount of investment is limited, within which one or another manager can make independent decisions.
Often decisions must be made in an environment where there are a number of alternative or mutually independent projects. In this case, it is necessary to make a choice of one or more projects based on some criteria. Obviously, there may be several criteria, and the probability that one project will be preferable to others according to all criteria is, as a rule, much less than one.
Two analyzed projects are called independent if the decision to accept one of them does not affect the decision to accept the other.
Two analyzed projects are called alternative if they cannot be implemented simultaneously, i.e. acceptance of one of them automatically means that the second project must be rejected.
In a market economy, there are many opportunities for investment. However, any enterprise has limited financial resources available for investment. Therefore, the task of optimizing the investment portfolio arises.
A very significant risk factor. Investment activities always carried out under conditions of uncertainty, the degree of which can vary significantly. Thus, at the time of the acquisition of new fixed assets, it is never possible to accurately predict the economic effect of this operation. Therefore, decisions are often made on an intuitive basis.
Making decisions of an investment nature, like any other type of management activity, is based on the use of various formalized and non-formalized methods and criteria. The degree of their combination is determined by various circumstances, including those of them, as far as the manager is familiar with the available apparatus applicable in a particular case. In domestic and foreign practice, a number of formalized methods are known, with the help of which calculations can serve as the basis for making decisions in the field of investment policy. There is no universal method suitable for all occasions. Perhaps management is still more of an art than a science. Nevertheless, having some estimates obtained by formalized methods, even if to a certain extent conditional, it is easier to make final decisions.
TIME FACTOR- accounting for time, duration of economic processes, terms of work performance as economic factors affecting the activity, its results.
The influence of the time factor should be taken into account in entrepreneurial calculations for the following reasons:
due to the presence of inflationary processes leading to the depreciation of money, a change in their purchasing power, which is different at different points in time with an equal nominal value;
due to treatment Money in the form of capital and receipt of income from turnover, since the same capital, which has a high turnover rate, provides a large amount of income.
According to the objects of investments, financial and real investments are distinguished. The objects of real investments are:
· Fixed assets;
· Real estate;
· Material and industrial stocks;
· Intangible assets;
· Professional development and training of personnel;
· Scientific and design work.
The latter objects are classified as investments, provided that they are carried out within a certain framework of the investment project.
The objects of financial investments are:
· Bank deposits;
· Securities;
· Foreign currencies.
Gross investment is the total volume of a certain period of real investment, which is aimed at construction, the growth of commodity and material values, as well as the acquisition of production assets. Such costs are incurred by investors for:
Ø Own funds (depreciation and profits);
Ш Funds raised (share contributions and proceeds from the issue of shares);
Ш Borrowed funds (bonded loans and credits).
Gross investments are used to maintain and increase fixed capital (fixed assets) and reserves. They are made up of depreciation, which is the investment resources necessary to compensate for the depreciation of fixed assets, their repair, restoration to the previous level that preceded production use, and from net investment, i.e. capital investment in order to increase fixed assets for the construction of buildings and structures , production and installation of new, additional equipment, renovation and improvement of existing production facilities.
Net investment is the so-called amount of gross investment, determined with the calculation of a decrease by an amount equal to depreciation charges in a certain period. Due to this indicator, the capital invested in production is reimbursed. Therefore, we can talk about economic profit if the depreciation deductions do not exceed the amount of gross investments, that is, the enterprise has positive net investments. Thus, the dynamics of net investment reflects, with the help of its indicators, the nature of economic development at various stages.
Growth in the amount of net investment entails a consistent period of increasing income. At the same time, the growth rate of income is many times higher than the growth rate of net investment. This process has a literary name - "multiplier effect".
Net investment can be:
· Positive - gross investment more sizes depreciation;
· Zero - gross investments are equal to the size of depreciation;
· Negative - the amount of depreciation exceeds the amount of gross investment.
Net investment is the resources that are spent to create capital goods. These benefits eventually wear out and become unusable for further use. This is where investments come to the rescue, with the help of which it is possible to restore depreciated capital goods, which will give a positive result for production and the expansion of consumer goods.
Each time, at the time of the implementation of net investment, that is, with capital investment, the productive effective physical capital increases by the amount invested in the corresponding prices. Despite this, the cost of production capital changes over a given period and as a result of inflationary processes.
Leasing has recently become one of the effective and traditional methods of investment instruments. With the help of this program, profound transformations of the world economy are carried out due to the effective management of financial resources.
Net investment in leasing is a process that provides a gross investment in the so-called lease. Investments are discounted at a certain interest rate, which is provided for in the contract drawn up earlier.
The gross leased investment represents the minimum lease payments received by the lessor at the time of a finance lease and any non-guaranteed residual value due to the lessor.
Net investments and savings are a set of funds carried out by economic entities or groups of persons. The sources of net investment are savings, which affect the investment process, which depends on many factors:
Expected rate of return;
Consideration of alternative possibilities;
· Interest rate level;
The level of taxation;
The rate of inflation.
Thus, the equality of net investment and savings affects, first of all, aggregate supply and demand, which is not an easy task. This is due to the fact that investment is a function of interest. Savings is a function of income.
Gross investment is the total investment of the investor in the investment object, no matter in what form they are made, and on what part of the object they are spent.
Of course, gross investment is a category of real investment, the objects of which are the fixed capital of enterprises and organizations, their working capital, construction and overhaul of buildings and structures, scientific and technical products, intangible assets. However, financial investments can also be considered as gross investments. This occurs during the initial acquisition of company shares by a financial investor, issued by this company specifically to receive investment for development. The further resale of these shares does not apply to gross investment, since after the initial sale, only a change of ownership of the shares takes place.
For example, in improving the skills of employees, in improving their living conditions and life, in educating the children of company employees. By investing in this area, the investor intends to increase his profit in production, since skilled labor is more productive than low-skilled, and normal living conditions contribute to the rapid recovery of the physical and moral strength of workers.
Gross and net investment
- investments to restore the capital used in the production process,
- investments aimed at increasing capital.
The recovery of used capital occurs by transferring to the depreciation funds of the enterprise amounts equal to the transferred value of fixed capital on production products for a specific period, usually a year. In this case, the size of such transfers is determined by an indicator called the depreciation coefficient. This indicator is different for equipment and buildings. The lifetime of equipment until complete physical wear and tear is the basis for determining this coefficient. For equipment, the life span ranges from 1 year to 10 years. Buildings and structures have a standard service life of 7 to 50 years.
Investments aimed at increasing capital are called. This is the whole range of investments that we wrote about earlier, with the exception of investments aimed at restoring used capital. Based on this, gross investment is equal to:
B I t \u003d A t + H It, (1)
- A t - depreciation in the t-th year;
- N It - net investment in the t-th year;
- In I t - gross investment in the t-th year.
Calculation of net investments is quite laborious and complicated, therefore, in the practice of such calculations, they are guided by the calculation of depreciation deductions and the calculation of gross investments, which statistics have been successfully calculating for a long time. Then from the above formula we get gross investment minus depreciation is net investment:
H It \u003d B It - A t. (2).
Gross investment formula (1) is used in the calculation of macroeconomic indicators of the economy as a whole when calculating the gross national product and a number of other indicators.
So gross investments are taken into account when calculating GDP according to:
Y \u003d C + G + B I + X n,
- C - consumer spending;
- G - government spending;
- B I - gross investment;
- X n is the cost of net exports.
The ratio in formula (2) can be positive or negative:
- at B It > A t the economy develops;
- at B It< A t экономика в стагнации, внутренних ресурсов недостаточно даже для воспроизводства капитала.
Similarly, for an individual enterprise, this ratio indicates its development.
Sources of gross investment
The sources of gross investment are:
- investor's own funds;
- funds of co-investors or others;
- bank loans and funds from other financial institutions;
- state funds;
- funds from the placement of IPO (Initial Public Offering) on stock exchanges;
- depreciation funds.
Most investors are trying to attract third-party funds to invest in an investment project. Investment projects have a fairly high degree of risk, and in order to reduce their own risks, the main investor invites other investors to implement the project, while maintaining project management as a whole. This is also the focus of the IPO. The company becomes public and more controlled.
Budgetary funds are attracted to gross investments in investment projects that are especially significant for the economy, which can be organized in the form of a public-private partnership. The state may also invest rights to land plots or deposits. As investments, the state can transfer entire state-owned enterprises to such a PPP.
Let's summarize: gross and net investments are important both for an individual enterprise and for the state as a whole, for their development and normal functioning. The indicator of gross investment is in the system of indicators of an individual enterprise and national accounts of the state, in macroeconomic indicators statistical reporting.
