Investment activity of the enterprise
A well-thought-out, well-designed investment activity of the enterprise helps the owner to receive additional funds to achieve his goals. We tell how she helps him in this, and explain what she suggests.
The essence of investment activity
According to the law, the latter refers to the investment of funds and the performance of some operations for profit. At the same time, regulatory documents define investments as money, securities or property valued in monetary terms and invested for the sake of earnings or a positive effect (expansion of production, sales markets, modernization of equipment, etc.). It should be noted that the goal may also be to maintain the current level of profitability.
Thus, the essence and content of the investment activity of the enterprise lies in the investment of resources and the performance of operations that help to earn or create, reconstruct, expand the fixed and working capital of the organization.
By the way, a company can invest its money in some projects if it knows that its investments will not only pay off, but also increase, because investing is a long-term investment. Therefore, the benefit that the investor will receive from investing (in this case, we are talking about capital gains) should at least compensate for the fact that these funds are not used in the current period, and at the maximum, also pay off the risk.
Evaluate the effectiveness of the investment activity of the enterprise just by the result that it brought. As a rule, this is a number of indicators, namely:
- net present income;
- rate of return;
- profitability index;
- payback period, etc.
Types of investment activity of the enterprise
According to the direction, activities are distinguished:
- Internal. It involves investments in the expansion of production, the purchase of new modern equipment, which would increase the volume of output or master a new direction of work. This will also include investments aimed at improving the skills of employees and mastering advanced technologies. Another option is bank deposits.
- External. Aimed at earning money from securities purchased from other companies or directly buying these companies.
Forms of investment in capital
Investment activity is carried out by the company for the sake of increasing capital. The investment itself can be done in different ways.
Material form of investment
There are 2 options here:
- Investment in the existing technical production base. In practice, it looks like this: an enterprise produces a product that is in consistently high demand, and in order to increase capital, its owner can expand the scale of activities, that is, invest in more products. Needless to say, it will be an effective investment, not associated with high risks.
- To improve the technical base. That is, this is already an innovative and investment activity of the enterprise. But before resorting to this option, it is necessary to calculate and comprehensively analyze the investment project, since the risks are already increasing here.
In this case, money is invested in securities. Also, the company can sell its shares and thus increase capital.
It should be noted that business owners rarely resort to this form of investment, mainly if they need to receive funds for the modernization of production.
It comes down to the registration of patents, international trademarks and, as a result, an increase in the market value of capital. True, in this case, you will have to obtain an international certificate that would guarantee the compliance of products with international quality standards.
In other words, here the investment activity of the company will include investments in operations that will allow obtaining a patent or registering an international trademark.
Another example of an intangible form of capital investment is the acquisition of a franchise.
Focus of activities
Investment can be directed to:
- Production expansion. Thanks to this, it is possible to increase the volume of manufactured goods, the sales market, thereby increasing profits. At the same time, funds will be invested in the opening of new divisions, workshops, improvement of the technical base, etc.
- Technical re-equipment. An organization that chooses this direction of investment activity will make a complete replacement of its equipment with a new, more modern one with better economic indicators. The production area will not be expanded.
- Reconstruction. It involves the restructuring of buildings, the replacement of obsolete equipment in order to diversify production and start producing new types of products. Reconstruction is more profitable than starting from scratch, since the enterprise resorting to it, as a rule, already has some kind of technical base, qualified personnel for work, that is, during reconstruction, you can change the direction of activity without huge costs.
- Growth in production and expansion of the range. Due to the latter, it is possible to reduce the company’s risks when demand fluctuates.
It should also be said that the owner of the enterprise can invest in improving production technology or increasing efficiency (in this case, a bet can be made, for example, on saving resources).
Subjects of investment activity
- Investor. He chooses the source of investment and directly invests the funds. An investor can be an individual, a legal entity, a business entity from abroad, a government agency or a local government. The rights of all investors are equal: they themselves decide where to invest money, in what volume. Moreover, they have the right to transfer their rights to other persons under an agreement or to dispose of the results of investments.
- Customer. The one who directly implements the investment project. To do this, the investor transfers to him the relevant rights for a certain period of time under the contract. The customer can be an individual or a legal entity.
- contractor or contractor. The subject of the investment activity of the company, which implements the project under the contract. Unlike the customer, does not own investments. At the same time, the customer gives him the money necessary to complete the work. By the way, according to the law, the contractor must have a license to carry out his activities.
- The user of capital investment objects, that is, the one for which the latter are created.
By the way, one subject of investment activity can combine the functions of others. That is, the investor himself can be a user, if this is not prohibited by an agreement or government contract, etc.
Investment policy of the enterprise
The investment and financial activities of the enterprise are determined by the investment policy. The latter is part of the financial strategy and boils down to making investments that would bring profit and help the business grow.
The policy is being developed in stages:
- first, the activity of the enterprise for the previous period is analyzed, the investment situation is studied;
- then the investment policy is prepared directly in key areas of investment;
- Finally, the implementation of the plan is carried out.
Along the way, the investment framework is determined (up to a year, up to 5 years, more than 5 years), sources of financing, working groups are created that will directly deal with it.
Important! Subsequently, it will be necessary to regularly analyze the work in order to identify and eliminate the weaknesses of the investment policy.
Legal basis for investment activity
Legal regulation of investment activities is carried out by a number of documents, namely: the Federal Law "On Foreign Investments", "On Investment Activities", "On Investment Funds", etc.
According to them:
- a favorable environment is created for the development of investment activities;
- the tax system is being improved;
- conditions are created for the formation by the subjects of their own investment funds;
- protect the interests of investors, etc.
Own and borrowed resources
Types and sources of investments in the framework of the investment activity of the enterprise :
- Own resources – profit, authorized and additional capital, money from reserve funds, depreciation. It is beneficial to use such resources, since in this case the owner is not liable to other companies, the state, creditors, etc.
- Attracted, borrowed – these are public investments (for example, grants), bonded loans, money from investors, credit organizations.
Basic principles and strategy of investment activity
- Flexibility. It should correlate with the existing economic structure of the enterprise, adapt to changes in the environment.
- Acceptability. It is necessary to invest taking into account the conditions that will be created in the near future.
- Complexity. The interconnected use in different departments is important.
- Efficiency. Projects must produce positive results.
- Efficiency. It is necessary to try to minimize the costs in the implementation of activities.
The development of an investment activity strategy should be carried out taking into account the long-term strategic goals of the enterprise. The form of investment, the choice of sources of financing, the process of preparing investment measures will depend on this.
Investment activity is part of the company’s strategy, which allows it to set new goals and achieve them, while increasing its income along the way. The organization of investment activity provides for the development of measures that help create and implement effective investment projects, that is, those that will not only recoup the funds invested for a long time, but also increase them.
The subjects of investment activity are working on the development and implementation of these projects, each of which has its own functions: for example, choosing the direction of investment or directly implementing measures. Activities are regulated by law.