Effective operation of any enterprisedepends on the correct investment policy of the management. When developing the right course, it is important to confidently operate with the concepts of gross and net investments, understand how they affect the state of the organization and the level of trust.
In the article we will consider what are the gross andnet investments, what are their differences, from which sources they are formed and for what purposes they are directed, and also we will find out what the calculated values of these indicators signal.
The concept of investment
Before talking about such concepts as grossand pure investments, it is necessary to be defined with the very concept of "investment". So, investments are monetary or material investments in order to obtain profit or other benefits. Objects of investment can be both production and non-productive sphere in the person of health, education, culture.
The role of investment
The role of investment in the modern economyit is difficult to overestimate. They affect all spheres of society by regulating and redistributing the benefits. Let's consider a simple example: financial investments in a production enterprise allowed to open a new workshop. In order to build it and lay the infrastructure, attracted construction organizations, which allowed the latter to earn. The new shop needs workers, so the number of jobs has increased, the unemployment rate in the country has decreased and the well-being of the population has increased. Due to the opening of the shop, the volume of production increased, and consequently the profit of the business entity also increased.
Workers of the new workshop were given the opportunityspend money earned on education, culture or invested in real estate. This example is quite specific, but it clearly reflects the importance of investment activities for the country's economy as a whole. Of course, the effectiveness of investments in the production sphere is much easier to assess, so we will continue to consider investments in the microeconomic sense, that is, from the point of view of a single production enterprise.
Structure of investments
It is accepted to distinguish real and financialinvestments. Financial investments include the acquisition of securities issued by the state or another business entity. Real investments include investments in fixed and circulating assets, new construction, repair of production assets, acquisition of real estate and land, as well as investments in intangible assets: licenses, patents, research, staff development. Thus, we have smoothly approached the gross investment, which is the category of real investment.
Gross investment
When it comes to gross investment, firstthe turn implies real, but financial ones can also be attributed to gross, if the investor acquires the shares of the company when they issue them first. Funds received from the primary issue of securities are primarily used to expand production assets and intangible assets: purchase of equipment, rent of premises, purchase of licenses, etc. Gross investments are investments in fixed production assets and working capital.
Composition of gross investments
Gross investment is primarily aimed at maintaining and expanding fixed capital, which includes:
- purchase, renovation and repair of equipment;
- acquisition and repair of industrial premises;
- capital construction, including housing;
- modernization of the production process.
Gross investment is also a source ofincrease in working capital. First of all, we are talking about the reserves of raw materials and materials that will be needed when expanding production, for example, after the opening of a new workshop.
An important component of gross investments are the funds spent for the acquisition of intangible assets:
- licenses and patents;
- inventions and know-how;
- brands and trademarks;
- rights to land plots;
- rights to mineral deposits;
- purchase of software and software products.
К нематериальным активам предприятия также human capital also applies, so gross investments can be directed to personnel training, medical insurance. Such investments contribute to the growth of the company's prestige in the market and indirectly affect the value of its shares.
Indicator value and calculation
Proceeding from the directions of investment, gross investments can be divided into two groups:
- investments that go to repair and maintain existing production assets,
- investments directed to capacity expansion.
The first group is depreciation.To accumulate this type of investment, amortization funds are created. The volume of the fund is determined by means of the depreciation factor, which is calculated on the basis of the life of a particular type of equipment or building, until they are completely physically worn. The cost of the asset is transferred by finished products, and after its implementation, the pledged amounts are accumulated in the depreciation fund.
The second group is represented by investments aimed at increasing capital, they are called clean. These include all types of investments mentioned above, other than depreciation.
The formula for calculating gross investment is as follows:
VI = A + CHI, where
VI - gross investments;
A - depreciation;
CHI is a net investment.
The ratio of gross investment and volumeDepreciation indicates the stage of development of an economic entity. The growth phase is characterized by excess gross investment over depreciation. If the situation is reversed, it is an indicator of a lack of production potential.
Gross investment in the macroeconomic system can also be calculated on the basis of the gross domestic product, which characterizes the total production of goods and services in the country:
VI = GDP - Pp - Pg - Rche, where
GDP - gross domestic product;
RP - consumer spending;
Wg - government spending;
Rche - the cost of net exports.
Sources of gross investments
The sources of formation of the total gross investment include:
- own funds of the enterprise in the form of depreciation and investment funds;
- investments by outside investors: financial (acquisition of securities: stocks, bonds, shares, etc.) and real investments in tangible and intangible assets;
- loans from banks, leasing companies and microfinance organizations;
- subsidies from the state budget.
Many businesses are trying to attract funds.third-party investors for their development. This is especially true when implementing investment projects. As a rule, the risks in them are large enough, and the company tries to diversify them by reducing the volume of its own investments and increasing foreign injections. At the same time, the organization retains full control over the project.
State funds are raised atimplementation of major projects that are important not only for a specific business entity, but also for the country as a whole. Infrastructure projects are often examples of public-private partnerships. There are also cases of public investment rights to land and mineral deposits. Special mention should be made of the situation when whole state enterprises act as an investment.
Net investment
Net investment is part of gross investmentwhich goes to expanding the productive capacity of the enterprise and increasing capital. Net investment is equal to the difference between gross investment and depreciation.
The net investment rate matters whenassessment of the state of the enterprise. A positive value of the indicator means that the company is in the phase of growth, developing and expanding. Zero value indicates a simple reproduction of fixed assets. A negative value signals that the company does not even have enough money to upgrade production assets, the organization is in a state of crisis and has a real risk of bankruptcy.
Sources of information
Net investment sources are similar to gross anddivided into own funds of the company, net private investment and borrowed funds of banks, leasing and microfinance organizations. The main internal source is profit from the sale of goods and services and share capital. In addition, the internal resources include profit from the sale of unnecessary, already depreciated property. The net investment from domestic sources is an indicator of organizational stability. It affects the level of trust in the enterprise by third-party investors and credit organizations.
Value for the economy
Чистые вложения относятся к реальным инвестициям, the purpose of which is to expand production and ultimately increase profits. The net present value of investments affects not only the stability of a particular enterprise, but also affects related industries in the country: from construction to health care, education and culture. Thus, investment activity contributes to the development of the country's economy as a whole and to the growth of the population's well-being.
Снижение величины чистых инвестиций сигнализирует about the beginning of a recession in the economy and the approaching crisis. The level of investor confidence decreases, and they transfer investments from real to financial ones, which in general aggravates the situation. Thus, the work of getting the country out of the crisis falls on the shoulders of the state.
Investment plays an important role in ensuringstable development of both a specific organization and the economy of the country as a whole. Gross investments are real investments and are directed to the reproduction and increase of fixed and current assets, as well as intangible assets. Gross investments consist of depreciation and net investment. Net investment is that part of the investment that goes into the expansion and modernization of production, the acquisition of patents and licenses, research and staff development. The volume of net investment is an indicator of the stability of the enterprise and affects the level of confidence of external investors and credit organizations.
