The investment crisis is an integral part of the general economic downturn and has common causes with the latter. The crisis in the investment was caused primarily by a sharp deterioration in the financial condition of the state, enterprises and the population, as a result of which funds are allocated mainly for current consumption.
Investment Assessment Criteria
The form of implementation of the investment activity of the company is an investment project. Assessing it, it is necessary to determine its economic efficiency. One of the criteria for evaluating investment is the normative coefficient of investment efficiency. But where to find funds on time for investment, when the crisis in the economy and instability in the law? Most investors are abroad, where financiers play by their own rules, they are ready to invest only in those projects that will benefit them. A problem arises: what can attract the attention of foreign investors? What is able to serve as the starting point that raises the flag for the start of investment?
Often decisions must be made when there are many alternative projects. In this case, it is necessary to select one or more options, based on certain criteria. Investors need to make an economic justification for investments, therefore, in our opinion, such a point can be a normative coefficient of investment efficiency, which will show the attractiveness and feasibility of attracting them to a particular industry. It is this parameter that shows the optimization of the specified volume of production of the final product. Therefore, the purpose of the study is to study how the normative coefficient of investment efficiency in modern conditions is evolving.
Research and publications on the problem
World scientific thought presents many theoretical developments on the methods and criteria for assessing the economic efficiency of investments. Famous foreign researchers in this field are: W. Behrens, L. J. Gitman, M. D. Jonkey, P. M. Havranek, V. Sharp, I. Ansof, S. Schmidt, J. Francis, J. Van Horne , D. Markowitz, H. Johnson, J. Bailey, G. Alexander. The research of various aspects of investment activity and the analysis of the effectiveness of investment projects are the subject of scientific works of leading scientists of the CIS countries. These are V.I. Anin, V.P. Babich, Yu. Bajal, I.A. Blank, L.M. Borsch, Yu. Bendersky, A. Galchinsky, V. Geyets, A. Goyko, K. A. Efimov , V. Krasovsky, D. S. Lvov, M. Melnik, A. S. Muzychenko, E. Panchenko, etc.
Statement of the main material
When evaluating an investment project, it is necessary to determine its economic efficiency. One of such criteria for evaluating investments is the normative coefficient of investment efficiency. What is he like? Why is it used and is there any need for it in modern conditions? The concept of a “normative coefficient of investment efficiency” arose back in Soviet times, when this coefficient was established by the planning and directive of the highest branches of government. Its need was due to the fact that both enterprises and industries, and the state needed an indicator that would make everyone try to achieve, and sometimes even exaggerate, the indicator, thereby showing the high efficiency of the enterprise, industry, country.Therefore, the first manifestations were reflected in the Methodological recommendations of the USSR State Committee for Science and Technology, in the State Planning Commission, etc.
Determination of the normative coefficient
The normative coefficient is the minimum acceptable level of economic return from the inclusion of an additional unit of resource in the economic turnover. In its economic essence, the normative efficiency coefficient shows the overall result of optimizing the distribution of the free resource of capital investments, which ensures the maximum reduction in current expenses, the mathematical formulation of which is as follows.
First of all, the normative coefficient of economic efficiency leaves the task of minimizing the total current costs of production of a fixed amount of production by the plan. The resulting value will be optimal. In Soviet times, these parameters could be calculated both for each enterprise, and for the industry, and for the country as a whole. Regulatory capital efficiency ratios are used only to compare investment growth when substantiating the most rational option. They can not be identified with the norm in determining the absolute effectiveness of investment. The normative coefficient of cost-effectiveness is an integral part of the methodology of reduced costs. It is based on a criterion, which is calculated by the formula (1). The option with the minimum sum of total costs is also recognized as effective: Зі = Сі + ЕнКи → min, (1), where:
Зі - costs for each option;
Сі - current expenses for each option;
Ен - normative coefficient of investment efficiency;
Ki - investment for each option.
Therefore, the economic efficiency of investments is compared by the level of reduced costs for several investment options. The most effective of the options for using capital investments is one that provides a minimum amount of reduced costs per unit of output or work performed. However, already in the next Methodology (1977), the standard coefficient of investment efficiency is used as the only one and is set to 0.15. In modern conditions, it is equal to the discount rate (reduction of different economic indicators by the beginning of the billing period - that is, until the year preceding the start of construction), the value of which is taken depending on specific conditions (as a rule, it corresponds to the discount rate of the National Bank). In market conditions, it is better to select investment project options according to a compromise criterion of net profit, as this significantly balances current costs and future income from investments. On the other hand, this criterion has the disadvantage that, according to it, objects are selected without taking into account the needs of scientific and technological progress, so it slows down.
Maximum criterion
The rhythm of progress depends heavily on price imperfections and requires an accurate quantitative assessment of the standard of capital investment efficiency with an analogy to bank interest. The criterion for the maximum rate of efficiency of capital investments, on the contrary, stimulates a high rate of development of technological progress and is much less dependent on the shortcomings of the pricing system, since it operates with a relative characteristic such as rolling assessment of a unit of capital investments for the entire life of the facility. The main disadvantage of the criterion for the maximum rate of capital investment efficiency is the overestimation of the fate of capital-intensive options and, accordingly, the share of investments in general and production costs. This deficiency can be partially or fully compensated by an increase in the write-off period, that is, a little help to increase the rate of accumulation, technological progress and economic growth.But such a criterion for maximum efficiency standards still has advantages from the point of view of evaluating investment projects, because, along with the maximum profitability, it shows the financial liquidity of capital investments and the scarcity of project resources, it is clarified by analyzing the external borders and is in essence the principle of the return on investment for a full account reinvestment of net and gross income.
Steps to determine investment performance indicators
The only maximum efficiency standard at the level of the entire economy is the average and objectively determined over time assessment of the “capital goods” resource, which may be the lower limit of effective investments. If for the region the maximum efficiency standard is more common for the economy as a whole, then this industry will develop. But even in such circumstances, the option with a lower efficiency rate will not always be discarded. So, in a real economy developing with a standard of efficiency less than the general indicator, the option of capital investments will be rejected, since its absence can inhibit the development of the industry.
The following steps can be suggested to determine an assessment of investment performance:
a) the variable in time or the time-averaged value of the maximum efficiency standard at the economic level is estimated according to the most probable future conditions for the functioning of the economy;
b) sectoral values of the norms of efficiency of capital investments are estimated (investments and, if the sectoral efficiency of the investment project is greater than the norm of efficiency of the whole economy, then this project is accepted, if this is not so, then the reasons for this phenomenon are clarified and a decision is made in accordance with the analysis);
c) the maximum efficiency standards for investment projects are compared with industry standards for efficiency, and if industry standards for efficiency are larger than such standards at the level of the whole economy, then these projects are carried out in descending order, if on the contrary, the least profitable investment projects are selected, the implementation of which is associated with objective circumstances.
Studies of the economic efficiency of investment projects
Considerable attention is paid to the study of the economic efficiency of investment projects in modern literature. At the same time, there is no consensus on the choice of methods and performance indicators when evaluating real investment objects. So, for example, I. A. Blank divides assessment methods into two groups: traditional and new. When applying traditional methods, it is proposed to calculate the efficiency ratio and payback period of investments; he refers to new methods the calculation of the payback period, the internal rate of return. A. A. Preuvelichenov believes that the assessment of the effectiveness of investment projects can be made using such methods: profit calculation, accounting for the net final cost of capital, net present price of capital, marginal efficiency. A study of the approaches proposed in the special economic literature to assessing the effectiveness of investment projects indicates that they are most justified in the work of Y. D. Krupki. He identifies two areas in which it is advisable to assess the effectiveness of projects in the process of their inclusion by the investor in the investment portfolio:
1. Simple static methods that do not take into account the time factor.
2. New dynamic methods based on discounting future financial flows, bringing them to their present value.
Among traditional indicators, the most widely used are: efficiency ratios (the ratio of the average annual amount of profit to the volume of capital investments) and the payback period (the inverse of it).Despite the simplicity of the calculation, both of these indicators have certain disadvantages. First, they do not take into account the time factor. As a result of this, when calculating both the efficiency coefficient and the payback period, proportions are determined by clearly incomparable values - the sum of the invested funds in the present value and the expected profit in the future value. Given that the time gap between investing and obtaining future benefits can be significant, inflation and other types of investment risk can have a significant impact on this comparison. Secondly, the drawback of these traditional methods of calculating the effectiveness of capital investments is that only the amount of profit is taken as the main criterion for the return of invested capital to the investor. The special interpretation in the past of the concept of depreciation (as a way of accumulating funds for the future reproduction of worn objects) did not allow calculating depreciation deductions. In market conditions, depreciation is regarded as a way to return the invested capital. It, together with net profit, as noted, is a source of cash flow formation.
Norm and efficiency coefficient: formula
The norms of investment efficiency are used to compare costs at price V at time t of the same resource at time t1 at constant prices and are determined by the formula: V = V1 (1 + E) ^ t1-r, (2), where V1 is the price of the resource in moment t1 compared to moment t; E is the norm of efficiency.
According to the formula (2), the efficiency is calculated, which will be through t1-t moments (periods) of time. So, the sooner the resource is used, the greater the effect.
Efficiency ratios are calculated as the ratio of profit from the implementation of the result to the costs of its creation as follows: E = З / Э; (3) where:
- E - saving or profit;
- C - the cost of creating savings;
- E - economic efficiency.
Calculation example: E = 200 000 rub., Z = 1 000 000 rub. Then E = 1,000,000/200,000,000 = 0.5.
It turns out that efficiency is a relative parameter, measured in fractions. Efficiency should not be confused with productivity and effectiveness. The correct determination of the norm of efficiency is of great importance. This is especially important when comparing options for certain performance criteria that use values (costs, profits). The lower the rate of effectiveness, the more options with high costs for the first period and with large investments for the future will have advantages. The increase in the ratio shows a significant increase in the price of previous expenses in the future. Therefore, this requires careful attention to the distribution of costs over time.
With a simplified form of the efficiency standard, you can take the relative amount of profit that can be obtained from the transfer of these funds to banks at interest. For example, if money can be invested in a bank at n percent, then efficiency standards can be taken E = 0.01 n. Therefore, when solving the problem of investing in an object, it is necessary first of all to carry out a calculation of efficiency, and this will be more profitable than putting money simply on a deposit.
This approach was first considered by L.V. Kantorovich. He identifies the normative ratio of investments with the norm of bringing different costs at the same time. He considered this approach in his proposed dynamic long-term planning model. Using this model, a general trend of changes can be identified, which are called optimal estimates of costs and production results over time.
A new approach in determining the efficiency ratio
However, there is another interpretation of what a normative cash flow efficiency ratio is.It lies in the fact that, depending on which options are chosen, they determine the amount of investments necessary for their implementation. Considering the fact that with the available investment volume it is possible, as a rule, to satisfy not all needs, the problem arises of searching for such combinations of options that fit into the investment limit and at the same time provide a total minimum of the reduced costs for the production of the indicated volume of production. The normative coefficient of economic efficiency obtained as a result of such a search will act as the main parameter that balances the supply and demand for capital investments. Such an approach was first proposed by A. L. Lurie. Differences in the interpretation of the economic nature of the normative coefficient of efficiency give rise to a difference in the mechanism for calculating this coefficient.
The existing school of comparative effectiveness, it is often called traditional, offers the following calculation mechanism, based on an understanding of the efficiency standard as a minimum reduction in cost per unit of additional capital investment. For each industry, the volume of production of the final product is established. Then select a certain number of objects, which in their total capacity provide the release of the agreed volume. The advantage in the selection is given to those objects that give a greater reduction in cost per unit of investment. For the first time, the approaches and Movshovich and Ovsienko were considered and analyzed. They proved that, under certain conditions, the models of L. V. Kantorovich, A. L. Lurie, V. V. Novozhilov (three approaches) can be reduced to one dynamic model. In each of the considered approaches, only one indicator is determined, with the help of which different costs are given, current expenses are measured for capital. It can be noted that the analysis of macroeconomic indicators by the formula equal to the calculation of the normative efficiency coefficient L. A. Vaage is reduced to the following. The normative efficiency coefficient is defined as the ratio of the total surplus product to its total fixed working capital assets.
Management efficiency
The process of evaluating management effectiveness is a series of actions:
- the calculation of the value of the criteria;
- evaluation objectives are developed;
- criteria calculation methods are selected;
- assessment criteria are justified;
- requirements for assessment criteria are formed;
- the composition of the source data is determined.
Typically, the economic efficiency of management is determined by the following factors.
- The ratio of management costs per unit of output.
- Management efficiency coefficient.
- Management Cost Ratio.
- The ratio of the number of managerial employees.
Improvement of the performance indicators of a company is possible as a result of the implementation and development of organizational and technical measures that reflect complex factors of efficiency. The most typical definition of the economic efficiency of measures to modernize management is to credit the annual economic effect taken from their implementation and compare it with the costs of these events. For a rough assessment of the effectiveness of ongoing management modernization measures, an indicator such as the coefficient of overall efficiency is used.
What needs to be done in this direction?
With the development of clearer methods, the value of this coefficient will become more accurate, however, the normative coefficient of cash flow efficiency is, in essence, the price of capital investments, and like any price, it should be the same for all consumers. That is why, probably, it is necessary to establish a single value for this characteristic.Although there is another point of view regarding the fact that this parameter should be calculated for all industries. After analyzing the situation in the country and analyzing the approaches of the standard efficiency coefficient, we can say that for Russia it is necessary to develop a transparent and clear methodology by which the standard efficiency factors are calculated, and a clear calculation of the standard efficiency coefficient that will take into account the conditions of the economy of our country.
