Investment

Investment, including capital investment, is in private financial planning ( there also investment ), and business administration, the use of financial resources ( Wöhe ) in order to increase personal wealth by income or as part of the business process in order to increase the profits of an enterprise. In a broad sense to include not only short-term investments and investments in securities. Narrower and the most common is the term for long-term tangible assets. Can be regarded as long term, if the means of production takes the current fiscal year. Investments span a wide range of real estate on business vehicles and machines to office furniture and can be made ​​by public and private enterprises.

From complementary economic point of view, the term refers to the use of funds for the procurement of capital equipment on a long term basis for the purpose of production of goods. The procured capital equipment used to maintain, improve or expand the production equipment of companies and receive long-term or increased the capital stock of an economy. The main factors influencing the investment size are of interest, the current income and current production and future expectations of investors. Investments include the acquisition of farm buildings, plant, machinery or tools. Not to investment, however, include durable goods, military goods or the acquisition of knowledge. Investments are financed from depreciation counter values. Only when the investment is greater than the depreciation, there is an increase in the capital stock.

• 2.1 Modelling
• 2.2 Types of investment
• 2.3 based on investment effects 2.3.1 Capacity effect
• 2.3.2 Income Effect
• 2.3.3 multiplier effect

• 2.8.1 investment rate in Germany 2004

• 5.1 Managerial Perspective
• 5.2 Macroeconomic Perspective

Business Administration

Investments are material and financial expenses for the replacement of, and in the intensively and extensively expanded reproduction, required basic funds. This is not just a means of production, as well as corresponding expenses in the non-productive sphere, such as represent the trade, investment. Capital goods are recorded in the balance sheet in the fixed assets and are therefore considered valuable asset owned by the company. Investment assets are depreciated over the expected period of use (see depreciation ).

For example, a company car worth 30,000 euros to be purchased. If a use of five planned for this, EUR 6,000 can be deducted from the cost as depreciation for each year. Thus the total costs fall in the profit and loss account ( P & L) not already in the first year, but are uniformly ( in contrast to the progressive depreciation or accelerated depreciation in this case linear) distributed over the entire useful life.

Investment and Finance apply the same coin as two different sides, as any investment must be financed accordingly.

The term " investment " is commonly used incorrectly in the business sense. Investment not a cost, so no operating expenses, but the conversion of assets into fixed assets, which is to the company over the longer term available.

Classification

Basically investments are distinguished according to the objects of investment. In addition, can be differentiated according to this rough breakdown even after start-up, net, gross and expansion investments:

By Subject:

• Capital expenditures: Traditional buildings and land are often mentioned; currently in Art
• Intangible investment: eg licenses, patents, generally commercially acquired knowledge, R & D ( research and development)
• Financial investment: eg, stocks, bonds, investments

According to purpose:

• Foundation investment: establishing accumulating investments
• Gross capital formation: sum of replacement and net investment
• Net investments: effective new investments, investments after deduction of depreciation, which serve to finance the replacement of the wear of the existing production
• Replacement investment: investment to replace itself in the production process -wearing capital goods
• Reinvestment: Wear or technical progress resulting investment which maintain the capacity by this wear will be replaced
• Expansion investments: investments also produce with the aim of having more and more means of production workers more
• Rationalization investments: investments with the aim of using the same ( or less ) amount of workers or machines to more ( equal or ) produce
• Divestments: Under disinvestment is defined as the release of funds through revenue generation and thus the company refluxing monetary means

By function:

• Research investment:
• Manufacturing investments:
• Paragraph investments:

By interdependence:

• Substitutive investments:
• Complementary investments:

• Direct investment refers to investments in corporate shares abroad. Direct investments are a form of capital export.

Review of rationalization and expansion investments

To determine the success of a planned or rationalization or expansion investment, initially triggered by the investment impact on the operational processes must be detected. The basis for this is a comparison of the new and future with the development of business process model. Use the following scheme ( change matrix ), the expected or impact incurred on any plane of observation are systematically recorded:

Legend:

• Input factors = factors of production used
• Output factors = results (eg products, but also intangible, social and environmental impacts)
• Changes in quantity (quantity ), quality (texture), spatial and temporal variation

Examples of investment effects:

( x means the intersection of row and column)

Input factors:

• Input factor 1 x quantity: From input factor 1 is a lower set because the new production process less waste accumulates.
• Input factor 2 x Time: The processing time by the input factor 2 (= machine ) is shortened because the new machine is clocked higher.
• Input factor 3 x space: For the storage of the input factor of 3 less space is needed because the new process, a high-bay is used.
• Input factor x 4 Quality: From input factor 4 is needed because the new production process has a higher efficiency lower quality.

Output factors:

• Output factor 1 x Time: For the creation of the output factor 1 reduces the throughput time, as fewer and shorter hospital stays incurred.
• Output factor of 2 x Quality: The quality of the output factor 2 increases because the new production process " friendly " deals with the raw materials used.
• Output 3 x factor space: the way for the extradition of the output factor 3 is shortened because production is relocated to the country with the highest demand.
• Output factor 4 x Quantity: The quantity of output factor 4 ( = noise) is reduced because the new production process is quieter.

After the acquisition of the investment effects have this, possibly, " monetized " using auxiliary assumptions, that is, be provided with cash-based equivalents. Only then can they find their way into the investment account.

Decision problem

Investments are considered to be sensitive key decisions in operating the business that they often have a long- term strategic importance. These result from the capital intensity, the long-term investment of capital and thus the reversibility of heavy investment. Another problem is the time it takes for an investment is realized ( time-lag ) and that the location information (mostly about the future ), which leads to uncertainties.

In order to make statements about the investment situation of a company, there are some financial ratios. These include the investment intensity, inventory intensity and rate of investment.

The investment decision is further complicated by the fact that in addition to purely economic criteria (for example, useful life, capital and profitability), which are summarized in investment accounting and prepared as a decision recommendation, often other aspects ( legal, technical feasibility, interdependencies with other areas ) a role play. A new approach for determining the profitability of an investment is the real option analysis, with which an investment can be determined by means of the option pricing theory.

Advanced Topics

• Investment planning
• Investment Appraisal
• Balance ratio
• Investment Promotion
• Leverage effect
• Value Investing

Economics

Modeling

In the simple model of demand for goods investment is considered as an exogenous variable. This is problematic, however, because the size of the investment responds to changes in production and is dependent on the interest rate. Investment is expressed in the model of demand for goods for a closed economy with government as

In an open economy is the definition

Z is the total demand for goods, C private consumption, G government spending without government investment. X is exports and IM import.

Types of investments

Regarding the investment, the following terms have to be distinguished:

• Gross Capital expenditures represent the total investment of a period.
• Under reinvestment (also called replacement investment ) is defined as a portion of gross capital formation, which serves to keep the production apparatus repaired. Reinvestment to replace depreciation and comply with these. Are these two quantities equal, the value of the means of production inventory remains unchanged.
• Net investments can be expressed as the difference between gross investment and reinvestment. They are used to improve the means of production, inventory, or expand and thus to support the growth of the economy. They increase the physical capital of the economy and will inform the contracting of private loans ( macroeconomic ) operating systems.
• Fixed investment are intended for long-term use of means of production.
• Inventory investment (also called stock investments) include changes in inventories of raw materials and supplies and trade goods. You are unplanned investments outside the economic equilibrium.
• Direct investments refer to cross-border investments and traded as a form of capital export.
• Environmental investments are among the long-term investments and serve to build more environmentally-friendly productions.

It may further be distinguished between public and private investment. Here, it is important to know whether the investment by a public authority or a company goes out.

On investments based effects

Capacity effect

Capacitance effects are the result of entered through net investment enlargements or improvements of production possibilities in the economy. This means that more or better property can be produced by investment. The total economic production potential is thus increased by positive net investments.

Income effect

The income effect referred to in the macro economy, the effect of investment on the demand and thus the national income. The vorzufindenden in theory effect chains indicate that increasing business investment spending for business expansions or new production processes lead to an increasing demand for goods. This production increases, and it created new jobs, which result in a higher income (primary effect). Higher income has in turn can begin increasing our consumption result, the more income effects in the economy cause ( secondary effect ) and this cycle all over again. An increase in the national income has further means that saving increases.

Multiplier effect

The multiplier effect of investments describes by how much the income of an economy increases if investments by a certain value increase. In an adaptation process creates example an investment of 50 million € a € 100 million to increased national income. The multiplier effect would be 2.0. An economic adjustment process describes the change of variables under changing conditions with the aim to establish the economic equilibrium. This does not happen automatically and therefore usually over several periods.

The investment equation

The investment equation analyzed how various factors influencing the level of investment. The focus of interest is the negative relationship between investment and interest rates. If rates fall increase the investment. If the interest rates raised sinks investment. In an economy can therefore influence the level of interest rates and thus the investment costs, particularly monetary policy.

Another influencing factor is the gross domestic product ( GDP). If it rises, increase the investment and saving increases. This means that is invested at a particular interest rate more than before. The Keynesian investment equation states that after a period

Must be. This equation is shown ( simplified circulation model) from the circuit model of Keynes. The investment equation also analyzes the relationship between consumption and investment. A rising consumer demand also leads to higher investment.

The equality of investment and savings

For a closed like open economy is that the net investment must be as large as the savings, because the savings corresponds to the unused part of the income and thus the unused part of the production ( net investment).

The amount of savings is determined by the investment.

It comes not from the outset in a match of these two variables. The result are forced investments or savings in retrospect.

The relationship between investment, growth and economic

The investment is the link between economic activity and growth. Since the investments are part of the demand, the increase leads to high rates of growth of the overall economy.

The business cycle is closely related to the willingness to invest. Economic downturns are accompanied by reduced capital, upswings, and the boom usually go with a high level of investment associated. Thus investments lead to a revival of the economy and are a prerequisite for a uniform economic growth and job creation.

Investment and government

Since the investment reacts very strongly to the economic situation, the question is often raised as to whether a state investment control and promotion would be useful. Investment subsidies within the meaning of public assistance or the Investment Act, are common practice.

Investment ratio

The investment rate refers to the proportion of the total investments made in the national economy investment to gross domestic product (GDP). Here, the GFCF is set in relation to GDP. A certain investment ratio is the prerequisite for the long-term growth of an economy.

The marginal rate of investment referred accordingly the change in the investment rate at a marginal change in demand.

Investment rate of the world economy

Investment rate in Germany in 2004

Investments in the Federal Republic of Germany in 2004, distributed as follows:

"Largest investors in 2004 were 12.2 billion euros in turn the car manufacturers who performed 25 % of all industrial investments. Their high level of investment from the previous year ( 13.1 billion euros ) they could not quite reach, however. Too, the chemical industry invested with 5.2 billion euros less than in 2003 ( -14.0 %) Other important investors, such as the food industry ( 4.3 billion euros, 3.9 %)., mechanical engineering ( 4.2 billion euros, 2.6 %) and the manufacturers of metal products ( 2.9 billion euros, 8.3 % ), but increased in 2004 to investment These five sectors led along with around 29 billion euro by nearly 60 % of all industrial investments ". .

Quote from a press release by the Federal Statistical Office ( Federal Statistical Office ) ( Federal Statistical Office ) of 8 November 2005.

Investment rate of the world economy