Investment activity: forms, types, analysis

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Investing activity is of considerable interest, because, according to a large number of people, it is a sure way to become a millionaire. What legislative, theoretical and practical aspects exist here?

Dealing with terminology

Initially, let's find out what the word "investment" means. From Latin, it translates as "investment." Thus, it follows from this that investment activity consists in directing certain funds into the process of forming various types of property in order to obtain certain income or other results in the future. However, they must exceed the initial investment. Very useful for studying the law "On investment activity". Reading and disassembling it is recommended to anyone who thinks about it seriously. In short, it discusses the specifics of investing in order to make a profit or achieve another pleasant effect. It should be noted that the case is not limited to one document mentioned above. But it is basic for this type of activity. ATthe general legal field is allocated to private and public investment activities. Although, of course, these are not all existing distinguished types.

About the point

Individuals and legal entities that invest at their own expense and from themselves are called investors. What is it for? The fact is that everyone is interested in increasing efficiency, high rates of development and increasing competitiveness. And this largely depends on the ongoing investment activity and the range of its implementation. And believe me, you should not underestimate its scale. So, a private enterprise can purchase auxiliary tools or fixed assets. Whereas the state is entrusted with more ambitious functions. For example, building and maintaining roads. Most often, investments are understood as investments of capital with the aim of subsequently increasing its volume. Although there is also an interpretation of the direction of funds for the reproduction of fixed assets, such as: buildings, vehicles, equipment, and the like. Also, investment activity may relate to working with current assets, financial instruments, patents, licenses and other developments. At the same time, there is a wide range of possible investments. Since the objects of investment activity are very diverse, there are a large number of different classifications. Let's take a look at some of them.

Real and financial investments

This is the most popular classification group. Real (sometimes called capital-forming) investments -it is an investment in the means of production. As a rule, they are sent to a specific, long-term project and are directly related to obtaining real assets. For this purpose, own or borrowed capital is used. Most often in the latter case, there is a bank loan. In this case, the financial institution becomes the investor, because it is in reality that it makes the investment. In practice, they can be grouped according to the following indicators:

1. The level of centralization of funding sources. There are two options here. May not be/centralized. In the first case, the money of the enterprise or the financial resources of other private organizations or persons are involved. Centralized financing is carried out at the expense of the budget.
2. Technological structure (composition of costs and work). Construction, installation, purchase of equipment, tools, inventory, as well as other funds aimed at capital needs.
3. The nature of the reproduction of fixed assets. New construction, technical re-equipment, reconstruction, expansion.
4. The way the work is done. Economic or contract way.
5. Destination. This is not/industrial.

And now let's talk about financial, or, as they are also called, portfolio investments. This refers to the direction of capital in securities and other similar assets. In this case, the goal is to form and manage an optimal investment portfolio. Moreover, this is carried out, as a rule, by buying and then selling securities on the stock market.market. A portfolio brings together a certain number of different investment values.

What are they like?

Forms of investment activity can be viewed from a slightly different point of view. The division into real and financial is the most popular, but besides them, one should also mention about:

1. Not/direct investment. In the first case, the investment activity of an organization or a private person provides for the presence of intermediaries. This option may be addressed by those who do not have sufficient qualifications to effectively select and manage an object. They ask specialists to take care of the funds, who place (manage) the money, and distribute the received income among their clients. Direct investments provide for the mandatory presence of an investor at all stages and processes. But mostly only well-trained people who have a stock of knowledge about the object and know all the necessary interaction mechanisms act in this way.
2. Short/long term investment. In the first case - no more than a year. In the second - over 12 months. As a rule, the following detailing is provided - up to 2, 2-3, 3-5, more than 5 years.
3. Property format. Allocate private, foreign, state and joint.
4. Regional feature. Domestic and foreign. In the first case, money is invested in facilities located within the country, in the second - abroad.

These types of investment activities exist.

Factors affecting volume

There are four main components on which this indicator depends. In addition to them, there are a number of other factors, but we will not mention them due to the fact that the size of the article is limited, and they are more suitable for a full-fledged book:

1. Dependence on the distribution of income received for savings and consumption. If the average per capita income is low, then most of it is spent on consumption. The more money people or structures earn, the higher the amount of savings, which act as a source of investment resources. This is a classic position of economic theory. The higher the share of savings, the greater the amount of investment.
2. The expected rate of net profit. This is due to the fact that the income received is the main incentive for investing. The higher it is, the more funds will be invested.
3. Loan interest rate. Although not a decisive factor, it can have a significant impact in cases where borrowed capital is used for investment. Which is quite common in our world. So, if the net profit exceeds the loan interest, then this has a positive effect on the volume of investments.
4. The estimated inflation rate. The larger it is, the more significantly the profit will depreciate, and as a natural result - a smaller investment object. This factor is especially important for long-term investments.

When preparatory work and analysis of investment activities are carried out, these indicatorsis given the most attention. True, they can have different meanings. So, the first point is the most important for the state. Whereas for a private investor with own funds - the second and fourth.

On economic efficiency

Before making a decision, the existing situation is analyzed. As a rule, the parameter of economic efficiency is decisive. This is a relative value, which is calculated as the ratio of the result to the cost. The benchmark can be profit growth, cost reduction, quality improvement, increase in labor productivity or production volumes, and similar characteristics. In addition, the payback period plays a significant role. This is the name of the minimum time interval that is needed to return investments and make a profit. At the same time, it must be taken into account that the effect of investments will not be immediate, but only after a certain period of time. The gap between investment and income is called lag. An investment project is created to outline what changes need to be implemented. This is a system of settlement, financial and organizational and legal documents that contain an action program that is aimed at the effective use of investments. Its preparation is a long and very expensive process, which consists of a number of acts and stages. In world practice, three phases are usually distinguished:

1. Pre-investment stage. It includes the search for investment concepts, better known as business ideas. After that comespreliminary preparation of the project. Then its financial and economic feasibility is assessed, after which it is finalized. And as a conclusion - the final consideration and decision.
2. Investment stage. It means a wide range of design and consulting work.
3. Operational stage. It is the process of planning, organizing and subsequently controlling the movement and distribution of resources.

And let's say a word about regulation

Where there is money, there are scammers. To minimize the negative consequences of their activities, the state is engaged in the regulation of investment activities. In addition, the process is subject to certain internal rules of the organization or individual. Individuals and organizations independently determine the approach to work. Therefore, only a few general words can be said about them. So, the real presence of existing assets, developments, the absence of claims from other subjects of legal relations is checked. More interesting is the regulation of investment activity by the state. Much attention is paid to this area.

The securities exchange and the enterprises trading on them will be considered as subjects of investment activity. Regulation here starts from the very beginning. Thus, the exchange may put forward certain requirements for the capitalization of the enterprise, annual turnover and other characteristics that are important for investors. In addition, attention is also paid to a number of other points -for example, it must be audited by an independent verification body. These are not just the whims of the exchanges - a number of requirements for them are put forward by the state. As well as to companies that are engaged in the purchase / sale of securities. Although at the same time, it is common for organizations to introduce a number of requirements on their own in order to maintain the bar of elitism or weed out unreliable clients (or dubious ones who probably have connections with the criminal world). All this is done to ensure that the development of investment activity proceeds confidently and without shocks.

About book value and risks

During the analysis, this indicator is defined as the difference between the initial expenses and the accrued depreciation. To make a positive decision, it is recommended that there be a positive balance of money accumulation. Then the question arises about the profitability of investing in a particular project. At the same time, there is a certain amount of uncertainty, which is associated with the situation on the market, expectations, the behavior of other structures, as well as the decisions they make. That is, it is necessary to understand that each action carries a certain amount of risk. What is the most common? Investors are being harassed:

1. Risk of instability in the economic situation and legislation.
2. Political uncertainty and adverse social changes in a region or country.
3. External economic risk. This is the likelihood of border closures or restrictions on the supply of goods.
4. Changes in exchange rates and/or market conditions.
5. Uncertainty of natural and climatic conditions.
6. Inaccurate or incomplete information.
7. Uncertainty of participants' interests, behavior and goals.
8. Production and technological risks (accidents, equipment failures).

To account for these uncertainties apply:

1. Sustainability project method.
2. Formatted description of uncertainty.
3. Adjustment of economic parameters, as well as project indicators.

Risk minimization

Effective investment activities of an enterprise cannot be carried out in conditions where there are many potentially negative factors. To minimize their impact, a number of tools are used:

1. Risk distribution. For this, a project plan is being prepared, as well as contract documents. At the same time, it must be remembered that the more the investment activity of the enterprise is entrusted to investors, the higher the risks and the more difficult it will be to find those who will invest their money.
2. Insurance. In essence, this is the transfer of certain risks to another company. This option usually includes property and casu alty insurance.
3. Reservation of funds. This is a way of dealing with risk, which involves establishing a certain balance between potential problems that affect the cost of the project, as well as the amount of expenses that are needed to overcome the failure in the project. It should be noted that part of the funds should be in the hands ofproject manager to be able to quickly correct the situation.
4. Method of private risks. It is used in cases where there is a risk of trouble at certain stages of work, although the entire project as a whole is not affected.

If you work correctly, then the investment activity of the enterprise will be very successful and with minimal losses.

Financial risks

Perhaps they, as well as minimization approaches, should be singled out separately. Most attention needed:

1. Risk of non-viability. In this case, the investor is advised to make sure that the expected income from the project will be able to cover the costs, the return on investment and the payment of debts will be ensured.
2. Tax risk. It includes the inability to use the benefits that are provided by law for certain reasons. This may be a decision of the tax service or a change in legal documents. To protect themselves from such troubles, investors include certain guarantees in contracts.
3. Risk of non-payment of debts. It occurs in cases of temporary decrease in income (for example, due to a short-term drop in price or demand). To avoid such consequences, it is planned to form a reserve fund, deduct a percentage of the implementation, and additional financing of the project.
4. Risk of construction in progress. In this case, additional costs are implied, which are associated with the completionproject base due to currency fluctuations, inflation, government regulations, environmental issues. Therefore, it is necessary to make sure that there is an opportunity to complete what has been started in a timely manner.

After all the risks are identified, we can say that a full-fledged analysis has been carried out.