To increase production capacities, technical development, improve the state of the material base, enterprises need to make certain cash injections, since it is economically inefficient to take funds from working capital for these needs, then you have to look for and use third-party financial investments in the form of gross investments.
Definition
Gross investment - the total amount of funds that investors invest in new construction, overhaul of structures, buildings, the acquisition of objects and means of labor, intangible assets and inventories. They are aimed at maintaining and growing fixed capital and stocks. With their help, the normal functioning of the enterprise, financial stability, and increased profitability of business entities are ensured.
Gross investment is the total amount of investor's investments in any investment object. And this is regardless of the form in which these investments were made and on what part of the object they were spent.
Gross domestic investment (VVI) - investments of residents of the country in the products of their state and their expenses, which are spent on the purchase of imported goods. VVI are often expressed in monetary terms or in% of GDP.
Structure
The composition of gross investments includes depreciation, which is investment resources that compensate for the depreciation of fixed assets, the cost of repairs, restoration, as well as net investments, that is, capital investments in work in progress and inventories.
Net investment characterize the change in the value of fixed capital after the amount of its depreciation has been accrued.
Fixed capital, as the main component of gross investment, includes:
- restoration of used funds as a result of moral and physical depreciation;
- updating production capacities - replacing equipment, changing production technology to a more progressive one;
- reconstruction, modernization of production;
- housing construction costs;
- costs of licenses, trademarks, patents, property rights, inventions, know-how.
Gross investments are expenses of a socio-economic nature, that is, investments in human capital: staff development, improvement of the motivation system, which, in turn, affects the increase in productivity and profitability of the enterprise.
Payment
Gross investment is equal to:
- Bn = An + Ch, where
Vn - gross investment in the nth year;
An - depreciation in the nth year;
Чн - net investments in the nth year.
If the value of Vn is less than An, then there is a decrease in production potential, as a result, a decrease in the volume of output (speaking of the macro level, we can say that the state "eats" its capital, similarly to the level of the enterprise).
When the value of Ext equals An, then there is no economic growth and production potential does not change (the state / enterprise stands still).
In the event that the volume of gross investment is greater depreciation deductions, the economy is at the development stage, since a wide renewal of its production potential is ensured (the state / enterprise has a developed economy).
Sources
The sources of gross investment are:
- own funds of investors, individuals, co-investors;
- borrowed funds: bank loans, funds of other financial organizations;
- state budget funds;
- depreciation funds;
- funds from participation in tenders on stock exchanges.
In order to reduce investment risks under the project, the main investor invites other interested co-investors for cooperation.
Public funds are spent on gross investment when the project is important to the state. Everything happens in the form of state private partnership - the transfer by the state to private hands of rights to deposits or land plots, state enterprises.
Efficiency
For an enterprise, gross investments are profitable if they give a calculated profit at the end of the implementation period of the planned investment project.
To increase the efficiency of investments, it is necessary to conduct a competent policy of reproduction of fixed capital and funds that guarantee the restoration of fixed production assets, their quantitative composition and high-quality technological organization.
The effectiveness of the use of gross investments depends on their structure: composition, direction of use, source of formation. But the fundamental criterion is profitability, which determines the priority of investments.
At the macroeconomic level, overinvestment creates inflation, and inadequate - deflation. Such imbalances in the economy are regulated by an effective tax system, government spending fiscal and monetary policy.
Role in economic development
The role of investments for manufacturers is as follows: enterprises achieve an increase in productivity, profit growth, a solid business foundation, and individual income through the effective attraction of additional capital in the form of investments that reproduce fixed assets and increase inventories.
At the state level, gross investments show the state of the economy, the level of GNP, characterize how much the products of domestic producers are in demand, whether investors want to invest in it, whether it is profitable. Based on these data, the state should create optimal conditions for manufacturers so that their products are in demand, both in domestic markets and abroad. For this, the government must provide benefits, subsidies, subsidies, and regulate taxation.
Gross investment plays a role in the economic development of the country, in building a modern high-tech material and technical base. Also, investments in the "knowledge economy", the so-called sphere of education, science, biotechnology, information technology, and health care cannot be dispensed with.
