Investment

To invest come down to be engaged of the money in a project, while renonçant with an immediate consumption and by accepting a certain risk, to increase its future incomes.

The term investment can just as easily refer to an economic concept (purchase of capital equipment in particular) that with a financial concept (Placement).

  • For a Undertaken, the investment is primarily an economic operation to acquire durable goods used during several exercise S. This direction also applies to certain durable goods of the households (Immobilier) and to the constitution of economic infrastructures by communities
  • For a private individual, or for an financial institution, name investment is generally taken within the meaning of placement in the short or the long term, for example the financial credit purchase of , in particular of the stock exchange titles

These two concepts meet however partly insofar as the financial placements in particular contribute to finance economic investments.

This article is primarily centered on the economic investments

Characteristics of the economic investments

The investments can be classified according to their intention:

  1. Capacity , to increase the production capacity of the company
  2. Replacement , the goal is to maintain the activity at the current level. It is the investment of predilection in crisis period.
  3. Modernization , the goal is to increase the productivity.
  4. Strategic , its goal is to ensure the development of the company.

The investments have several characteristics:

  • productive / unproductive ,
    • the investment is regarded as productive when the cumulated value of the goods and satisfactions obtained is sufficiently higher than the generated costs.
    • the investment is regarded as unproductive (or not directly productive), when it relates to goods and services of public utility (schools, hospital, etc).
  • material / immaterial
    • a material investment relates to a good of production, for example.
    • an immaterial investment relates to services: formation, research and development, innovation, marketing, technologies information,… likely to bring a future development.
  • economic / financial :
    • the economic aspect sticks to the real characteristics of the investment,
    • the financial aspect considers only its financial counterpart.

Case of the expenditure in information technologies: Certain expenditure as the expenditure in information technologies is usually attached to centers of cost in the companies. In this type of expenditure, half on average relates to the maintenance of existing applications, while the remainder relates to the developments and should be counted like capital expenditure, but this generally does not appear in the accountancy of the companies (in France).

Financing of the economic investments

Before employing its resources with the investment the company must wonder about its financing. Indeed, it is important for the leader first of all to make his trade: the Strategy of company and the Organization of company. Failing this, it is found with means but without relevant way and in a facility which pushes back the need for this reflection.

The needs for Financing of a company, and in particular those of its investments, are satisfied by: self-financing, recourse to the loan or capital growth. Of course, the three can intervene together. The investments can also be financed by transfer of credits, within the framework for example of a strategy of centring.

Self-financing

Self-financing: financing of the investments by average interns with the company.

The recourse to the loan

That consists in raising capital in the form of ready near third. The duration of the loan must be in agreement with the amortization period of the bought good (in general the loan is a little shorter than this one). The loan can be of 2 types: banking or bond.

The Capital growth “in cash”

It is a question of increasing the Stockholders' equity company while making subscribe new shares (limited liability company) or actions (SA). He is asked, via an operation of increase in Capital in cash,
  • with the shareholders to put the hand at the pocket to finance the investments
  • and/or at new shareholders to enter the capital of the company.
This method with the advantage of reinforcing the solvency of the company, which in any event cannot exceed a certain amount of recourse to the loan without losing the confidence of its banks and suppliers. However, this operation is rather often badly seen by the shareholders, because the issue of new shares “will dilute” the value of their current actions.

This method is thus usable only if the shareholders agree to give of the money in the company. That will depend mainly:

  • of the Profitability of equities posted or aimed by the company. This profitability and the risk which is associated for him must be compared with the other couples profitabilities/risks available in addition.
  • and of course, for the dimensioned companies, of the Stock exchange courts, which must be higher than the issue price of the new actions so that it is beneficial to subscribe those.
  • or, more negative factor but which involves a strong pressure on the shareholders, of a critical debt position being likely to make sink the company if it does not find fresh money to consolidate its stockholders' equity.

the capital growth in cash should not be confused with that by incorporation of reserves (it does not act whereas of a transfer of countable station inside the stockholders' equity) nor that by exchange of titles (case of fusion-acquisition )

Decision criteria of an investment

  • the Return on investment or Output , is the ratio of the amount of the profits (positive), or losses (negative), brought back to an annual base, compared to the invested amount. It is often made with title prévisonnel to determine if an investment suggested is adapted, and up to what point it will satisfy the investor.
  • the profitability is a decisive criterion to choose the investment, it is measurable with certain criteria:
    • the clear Current value (VAN) .
    • the index of profitability and the favors relative.
    • the rate of profitability interns (TRI) . This criterion can sometimes be in contradiction with the criterion of the VAN. One can find two investment has and B such TRIA > TRIB and VANB > VANA
    • the time of recovery of the funded capital . One can reproach this approach for supporting an approach short term. Indeed, it is easily possible of exhiber two investments has and B such as:
      • VANB > VANA
      • has makes it possible to recover its capital in 2 years whereas B requires 3 years.
  • the funded capital .
  • Lifespan.
  • Residual value .
  • net Prices of treasury or Capacity of self-financing .
  • the relative price of the capital compared to that of work. If a>b with has the price of work compared to its practical value and B the price of the capital compared to its practical value, there is substitution of the capital to work. Therefore, investment.
  • the request: the companies seek to anticipate the request before investing to know if it is necessary to increase their production capacities. Thus favorable anticipations (a rise of the request is envisaged) support the investment while unfavourable anticipations (stagnation even falls demand) slow down it.
  • interest rates: they fix the cost of the loans contracted to carry out an investment and can thus slow down the investment if they are high.
  • the level of debt of the company: a too involved in debt company will have to devote its profits to its degearing with the risk to disappear.

Any investment must take into account the Opportunity cost making it possible to compare its cogency compared to other uses of the committed capital.

See too

Random links:Not superscribed | Universalismo unitario | Meslay-of-Maine | Probability with the poker | County of Shaoxing | Marcellite Garner | 390