Sources of investment
| Parameter name | Meaning |
| Topic of the article: | Sources of investment |
| Category (thematic category) | Management |
Sources of investment - concept and types. Classification and features of the category "Sources of investment" 2017, 2018.
-The essence and classification of investments Evaluation of the effectiveness of the investment project Sources of investment The essence and classification of investments Lecture 10. Investment strategy Implementation of the strategy, ....
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Their sources of financial resources used for investment purposes are considered to be the most important worldwide profit and depreciation charges. The profit of an enterprise is formed in the process of its production activity, this is her ....
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The use of profit as a source of financing for real investments aimed at expansion, reconstruction and technical re-equipment of the enterprise has a positive aspect for the enterprise in the sense that this profit is not subject to income tax on ....
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In the discipline "Investment management" For the specialty 080507 "Management of the organization" The term "investment" comes from the Latin word invest, which means "to invest". Investments are investments of capital for the purpose of its subsequent ....
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The most reliable are own sources of investment financing. Ideally, every travel business should always strive to be self-financed. In this case, there is no problem where to find sources of funding; the risk of bankruptcy is reduced ....
In the economic literature, when analyzing sources of investment financing, internal and external sources of investment are distinguished. At the same time, domestic sources of investment, as a rule, include national sources, including own funds of enterprises, resources of the financial market, savings of the population, budget investment allocations, and external sources - foreign investments, loans and borrowings.
This classification reflects the structure of internal and external sources from the standpoint of their formation and use at the level of the national economy as a whole. But it cannot be used to analyze investment processes at the microeconomic level.
From the standpoint of an enterprise (firm), budgetary investments, funds of credit institutions, insurance companies, non-state pension and investment funds and other institutional investors are not internal, but external sources. Sources external to the enterprise also include the savings of the population, which can be attracted for investment purposes by selling shares, placing bonds, other securities, as well as through banks in the form of bank loans.
When classifying sources of investment, it is also necessary to take into account the specifics of various organizational and legal forms, for example, private, collective, joint ventures. So, for enterprises that are in private or collective ownership, the personal savings of the owners of enterprises can act as internal sources. For enterprises jointly owned with foreign firms, investments of foreign co-owners should also be considered as an internal source for the enterprise.
Thus, one should distinguish between internal and external sources of investment financing at the macroeconomic and microeconomic levels. At the macroeconomic level, domestic sources of investment financing include: state budget financing, savings of the population, savings of enterprises, commercial banks, investment funds and companies, non-state pension funds, insurance companies, etc. External sources - foreign investment, loans and borrowings. At the microeconomic level, internal sources of investment are profit, amortization, investments by the owners of the enterprise, external sources are government funding, investment loans, funds raised by placing their own securities.
When analyzing the structure of sources of investment formation at the microeconomic level (enterprises, firms, corporations), all sources of investment financing are divided into three main groups: own, attracted and borrowed. At the same time, the company's own funds act as internal, and borrowed and borrowed funds - as external sources of investment financing.
The main sources of the formation of the investment resources of the company:
- - own:
- - net profit directed to investments;
- - depreciation deductions;
- - the reinvested part of non-current assets;
- - the immobilized part of current assets
- - attracted:
- - issue of company shares;
- - investment contributions to the authorized capital;
- - public funds provided for targeted investment in the form of subsidies, grants and equity participation
- - funds of commercial structures provided free of charge for targeted investment
- - borrowed
- - loans from banks and other credit institutions
- - issue of bonds of the company
- - targeted state investment loan
- - investment leasing.
Analysis of the structure of sources of investment financing at the level of firms in countries with developed market economies indicates that the share of domestic sources in the total volume of financing investment costs in different countries varies significantly depending on many objective and subjective factors.
As a rule, the structure of sources of investment financing changes depending on the phase of the business cycle: the share of domestic sources decreases during periods of recovery and recovery, when investment activity increases, and grows during periods of economic downturn, which is associated with a reduction in the scale of investment, a reduction in the supply of money, and a rise in the cost of loans. ...
The most reliable are own sources of investment financing. Ideally, every business organization should always strive to be self-financing. In this case, there is no problem of where to get funding sources, the risk of bankruptcy is reduced. There are other positive aspects as well. In particular, self-financing of the development of an enterprise means its good financial condition, and also has certain advantages over competitors who do not have such an opportunity. The main own sources of financing for investments in any commercial organization are net profit and depreciation charges.
Profit as a source of investment financing. The main goal of the enterprise in market conditions is to maximize profit. It is the main financial result of the enterprise.
In modern conditions, enterprises independently distribute the profits that remain at their disposal. And the question immediately arises: how to distribute this profit most rationally? It can be directed to: production development; construction of housing, rest homes, kindergartens and other non-production facilities; payment of dividends, if it is a joint stock company; charitable purposes, etc. For the rational use of profits, it is necessary to know well the technical condition of the enterprise at this moment and for the future, as well as the social status of the enterprise staff. If the company has employees in social terms, including in terms of wages, to a greater extent are provided in comparison with other enterprises, then in this case the profit must be directed primarily to production development.
It can be unambiguously answered that the profit should be directed to the development of the enterprise if the level of technical development of the enterprise is low, which is a brake on the production of competitive products and a possible reason for the bankruptcy of the enterprise. Thus, the distribution of profits in the enterprise must be justified in economic and social terms.
The source of investment can be ... the funds of the depreciation fund
1. Induced investments are made when ...
growth of national income
growing demand for goods
with constant demand for goods
with a decrease in national income
Solution:
Induced investment is an investment in production with the aim of increasing fixed capital and resulting from the ever-increasing demand for goods and the growth of national income.
2. Investment in stocks ...
are carried out in order to smooth out fluctuations in production volumes with a constant volume of sales
are carried out in connection with the technological features of production
associated with household expenses for the purchase of houses, apartments
related to the expansion of the used capital stock
Solution:
To answer the question, you need to know what investments in stocks are and what are the reasons for their implementation.
Investments in inventories are carried out in order to smooth out fluctuations in production volumes with a constant volume of sales or in connection with the technological features of production. Investments associated with household expenditures for the purchase of houses, apartments are called housing investments. Investments aimed at increasing the fixed capital used are called production investments.
3. The volume of investments directly depends on ...
real national income
real interest rate
rent amount
euro exchange rate
Solution:
The volume and dynamics of investments are influenced by two factors - changes in the real volume of national income and the real interest rate. The amount of rent is the income of the owner of the land, it affects the amount of rent for the land. The euro exchange rate may influence the investor's decision to transfer liquid funds into foreign currency rather than invest in real production, but it does not directly influence the investment of funds in all directions.
So, the real interest rate and the real volume of national income have a direct impact on the volume and dynamics of investment.
4. Investments made with the aim of expanding the amount of applied physical capital can be attributed to ...
investment in fixed assets
induced investment
investment in stocks
portfolio investments
Solution:
Investments in inventories are carried out in order to smooth out fluctuations in production volumes with a constant volume of sales or in connection with the technological features of production. Investments aimed at increasing the used fixed capital are called production investments (investments in fixed assets). Induced investment is an investment in production with the aim of increasing fixed capital and resulting from the ever-increasing demand for goods and the growth of national income. Investments in securities are called portfolio investments, they do not affect the increase in cash fixed capital.
So, investments made with the aim of expanding the amount of applied physical capital can be classified as investments in fixed assets and induced investments.
5. The source of investment can be ...
depreciation fund
issued and placed bonds
part of the profit that they decided to distribute to shareholders
authorized capital of an enterprise
Solution:
Sources of investment are divided into external and internal. Internal assets include depreciation fund and retained earnings of the enterprise. External sources include: leasing, bank credit, commercial credit, tax credit, etc.
Thus, a part of the profit that they decided to pay in the form of dividends cannot be a source of funds for investment, since this profit is already considered distributed. The authorized capital also cannot serve as a source of funds for investment.
The investment process plays a huge role in the economy of any country. If investments are made, the economy grows, new enterprises appear, the population has more money on hand, which is again invested in the economy.
If investments are reduced or not made at all, the economy begins to decline, and the standard of living falls. To understand how to manage this process, it is necessary to consider the concept, sources, types of investments.
Investments are investments of funds in any assets. It can be stocks, bonds, buildings and structures (see), equipment, etc.
Note! Investments can be made not only by companies and enterprises, but also by individuals. In addition to buying securities or investing savings in foreign currency, the purchase of various goods with a long term of use, for example, household appliances, is also considered an investment.
The purpose of an investment is to generate additional income or profits. For example, the purchase of securities is done with the expectation that the stock price will rise and the investor will receive additional income.
The construction of a new production hall or the purchase of new equipment is carried out to produce a larger volume of products, which means an increase in the company's revenues and profits. Even installing plastic windows or water meters is an investment.
Indeed, in this case, there is a reduction in utility costs, therefore, the family's free funds increase. For further consideration of the question, what is the essence, types and sources of investment, it is necessary to classify investors.
So, investors are:
- private;
- corporate;
- institutional.
Private investors include all individuals who somehow disposed of their savings - invested them in securities, formalized a bank deposit, purchased real estate or durable goods.
Note! The most popular area of investment among individuals is real estate. However, the threshold for entering this market is very high - a sufficiently large amount of funds is required to purchase an apartment, office or house. Therefore, many professionals recommend paying attention to the art market. Securities and precious metals require constant attention and tracking, what is their current price in the market. Paintings and sculptures are available for purchase and are almost guaranteed to rise in price over time.
Corporate investors make investments on behalf of legal entities. Basically, they invest in the development or renovation of production and equipment. However, if they have free funds, then corporate investors may well put them on a deposit or purchase securities or currency in order to receive additional income.
Institutional investors are generally professional participants. They constantly play on the stock exchange and earn profit from this. For them, investing is a profession.
They even attract funds from the public and corporations to manage them and thus earn a profit for themselves, and bring additional income to clients. Having considered the classification of investors, you can name.
So:
- Real investment or capital investment- investments in production assets. They are carried out, as a rule, by corporate investors, financing the construction of new buildings, structures, purchasing equipment.
- Portfolio investments- investments in various securities. They are carried out by institutional investors, professionally playing on the stock exchange.
- Consumer investment- purchase of goods with a long term of use or real estate, art objects. They are carried out mainly by private investors.
Thus, we analyzed what investments are, their concept, types, and we will consider the sources below.
Sources of investment
Investments can be made from the following sources:
- own funds- it can be accumulated profit or equity for corporate investors, or personal savings for private investors;
- funds from budgets and extrabudgetary funds- this can be state investments in the construction of infrastructure (for example, roads), subsidies for the development of entrepreneurship or the organization of business incubators and technology parks, and so on;
Note! The Russian Pension Fund is one of the largest institutional investors. The savings of citizens in it are invested in government bonds of the Russian Federation. Such investments have minimal risk, but also minimal profitability. Therefore, when deciding where to store your pension savings, you make an investment decision, making a choice between high profitability and high reliability.
- loans and credits, and other attracted funds- fundraising is typical for corporate and institutional investors. The former raise funds for the implementation of investment projects. The second - to increase the amount of funds under their own management, which means to increase their own profits;
- foreign investment- funds received by corporate or institutional investors from their foreign partners. Investments, as a rule, are within the framework of instructions received from the owners of funds.
So, in this article, investments were considered, their concept, sources, types. Recommendations were also given for the direction of private investment. Real investments in production are more profitable for the country's economy.
However, in Russia, portfolio companies now prevail. This situation can be changed. To do this, you need to invest your own savings in a bank or purchase any durable goods of domestic production. As a result, money will remain in the economy and will contribute to its development.
In the economy, the sources of the formation of material investments are usually divided into two main categories: internal and external sources of investment. In the macroeconomic sense, domestic sources are represented in the form of national resources, it can be the capital of enterprises, budgetary allocations. External sources include, respectively, foreign investment, loans and other borrowed funds.
It is customary to divide investments into the same categories in microeconomics, but their nature is somewhat different. When it comes to individual enterprises and investment projects, we distinguish other sources and methods of investment in these categories. It is customary to refer to internal profits of the enterprise, the capital of the holders of shares in the enterprise and depreciation costs (gross investment). The external ones include borrowed capital, government subsidies, money drawn from working with the stock exchange, and leasing investments.
Simply put, the names of these two categories should be taken literally. Internal sources of financial investments include the investor's own funds, and external sources - all the rest. Much easier, isn't it? In microeconomics, the categorization is even more detailed. What are the sources of investment financing? There are three main groups: own, borrowed and borrowed.
There are a variety of forms of investment that belong to one group or another, depending on the nature of their origin. These groups should also be divided into internal (own) and external (borrowed and borrowed). The proportionality of the shares of various groups of investments in fixed assets of companies depends on the specifics of the national economy.
In Russia, most of the capital is raised funds in the form of government subsidies and subsidies. In the USA and England, most of the funds are the fixed assets of the companies themselves. In actively developing countries with a constantly growing economy (Korea, Japan, Germany), the overwhelming part of the capital of companies is attracted and borrowed funds, most often in the form of foreign investments.
2 Internal sources of funding
As we have already said, internal sources for financing investments are the company's own funds and the money of the owners of the enterprise. Own sources of formation of financial investments:
- the profit of the enterprise;
- depreciation costs;
- reinvested non-current assets;
- reinvested part of current assets.
An enterprise's net profit accounts for the largest portion of the induced or variable investment of enterprises. The total amount of induced investments consists of reinvested non-current assets and part of the profits of the enterprise, which it is ready to use to implement its own investment policy. The proportion of profits channeled back to fixed assets depends on the marginal propensity to invest.
Depreciation expenses and the part of current assets immobilized in the form of investments are most often the company's autonomous investments. All depreciation costs are essentially the gross investment of the company. Finding the optimal balance between internal sources of finance is one of the most important tasks facing the company's management. In theory, a company can successfully participate in a market economy and bring an acceptable profit even if it completely refuses to reinvest the income earned in the course of commercial activities. In practice, the growth of an enterprise and business expansion is impossible without the involvement of large capital.
Internal sources for financing investments are the most important resource of the enterprise, and without them its development is not possible. A company without these resources completely loses its market potential, more often than not, it becomes bankrupt. Lack of profit, lack of circulating assets - these are symptoms of a dying enterprise, in which a private investor interested in receiving dividends will not invest their money.
Simply put, in the absence of internal sources of investment, it becomes problematic to attract money from outside.
3 Investments from external sources
External sources include sources of financing for investments that come to the enterprise from outside and are not part of the fixed capital or capital of the owners of the enterprise. We have already said above that these sources can be borrowed and attracted. Let's start with the latter. Attracted sources of money for the formation of investments:
- issue of securities issued by the company;
- contributions to the authorized capital in the form of real investments from outside;
- government subsidies, subsidies, grants;
- targeted gratuitous investment from commercial organizations.
Any company that sets itself the goal of expanding its presence in the market is constantly raising money from outside. The fact is that borrowed and attracted capital is cheaper, and enterprises are trying to increase their own assets by issuing securities on the stock exchange and looking for private investors interested in profitable capital allocation.
Companies are also actively involved in government programs. Government grants and subsidies are often provided free of charge with the expectation of improving the situation in the entire industry, and therefore enterprises are interested in obtaining such financial doping. Do not miss companies and the opportunity to participate in various innovative projects to receive targeted grants.
The role of private and public investment cannot be underestimated. It is thanks to the activity of capitalists that venture investments have become a significant part of the modern economy and have allowed giant corporations to enter the market with innovative products. If the developers of revolutionary software and the latest high-tech products used their own sources of investment, the modern economy would look completely different.
There are other external sources of investment financing, they are called borrowed. Borrowed funds represent:
- loans;
- issue of debt obligations (bonds) of the enterprise;
- government credit initiatives;
- leasing.
Loans can often be the only way to get the money you need to develop. Large financial institutions often provide huge loans to companies that simply cannot meet domestic investment demand by raising funds from private investors. An example is the company's initiative Marvel, which entered into an agreement for a period of 7 years with a financial conglomerate Merill Lynch & Co.
The loan amount was $ 525 million. Find a similar amount by selling securities or without selling a huge share of the company owners Marvel just couldn't. The state would also not finance such an initiative by providing a loan.
Issuing a company's bonds on the stock market is also one of the ways to quickly find money, which is suitable for large companies looking for immediate funding. The concept of leasing has recently become more and more popular in Russia. Investment leasing and leasing of material assets are sources of formation of material investments. Industrial equipment and real estate are provided on the basis of leasing.
4 Borrowed and attracted investments - the main characteristics
Attracted investments in the form of money masses obtained through redemption by the population or other commercial structures of shares have some economic characteristics:
- the complexity of the sale of securities on the stock exchange;
- mandatory full payment of the authorized capital;
- only closed and open joint stock companies issue shares;
- need to pay dividends.
Leveraged investments can be more attractive for businesses that have a strong financial position. For these companies, the borrowed capital will be cheaper than the borrowed capital in the long term. The characteristics possessed by borrowed investments include:
- the need to provide security for a loan;
- the possibility of obtaining a lease or a loan is available only to companies with good financial performance;
- the need to pay discounts on bonds and interest on loans.
The critical difference between the two groups of investments can be called the difference in the conditions of work with one or another source. Any company can use borrowed funds, but only joint-stock companies can raise funds from outside directly into fixed capital. For some enterprises, this is an undoubted advantage, for others, an increase in the number of shareholders does not seem to be the most profitable prospect.
5 Indirect sources of investment
The company may also be interested in sources that are called indirect. There are three main types of such sources: leasing, franchising and factoring. Leasing can be conditionally attributed to borrowed sources, but often enough boundaries can be drawn between leasing and credit to distinguish leasing into a qualitatively different category of investments.
What is leasing? In fact, this is the provision by the lessor of property (industrial equipment, raw materials) for temporary use for a certain fee to the lessee until he buys it from the actual seller. Three parties are traditionally involved in a lease agreement: the lessor, the lessee, and the seller. This scheme is somewhat different from a debt contract.
Franchising is the transfer of intellectual property from a copyright holder to an enterprise for a conditional payment. This form of indirect investment has allowed many companies to strengthen their market position. The McDonalds chain can be considered the clearest example in the Russian economy. A large restaurant is transferring the rights to use its trademarks under a franchise scheme and thus invests in the Russian economy.
Factoring is a more complex scheme for the implementation of an enterprise's receivables. In this case, we are talking about the actual sale of the receivable debt to the factor company.
Indirect sources of investment financing do not have a critical impact on the financial performance of an enterprise and CWP in a macroeconomic sense, but they are still important factors that must be taken into account when analyzing certain companies that can be successful without attracting large external sources of investment, but taking into account the use of indirect sources of investment and competent management of internal resources.
6 Position of an independent investor
Private investors often wonder where to invest their money. As you may have gathered from the above, external investment is of the greatest importance to the enterprise and can be a decisive factor in the process of its expansion or restructuring. Many companies would not have been able to receive financial incentive from the outside if the telecommunications infrastructure had not developed to the level at which it is today over the past twenty years.
Previously, trust funds and brokers raised funds for trading on stock exchanges by contacting citizens by phone or mail. Raised money from outside, knocking on the doors of potential clients. Today, the Internet allows private holders of small capital to find the best ways to implement their own investment strategies, by comparing investment instruments with each other in real time, by passively monitoring the state of the market.
The investor can be presented with a variety of ways to place capital. By buying back bonds, private investors can be active lenders of businesses. When buying shares to receive dividends, the investor uses his savings as a source of investment, which becomes external to the enterprise placing its securities on the stock exchange, thus trying to attract additional finance to the fixed capital.
The modern Internet infrastructure allows ordinary people to act as a source of investment for an enterprise.