Gross investment. The difference between net and gross investment. Development of the social sphere
Gross investment- this is the total volume of investment resources in all their forms, directed in a certain period to the implementation of real and financial investment.
Gross investment formula
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An effective method of developing and promoting a company is to invest in its values. This contributes to the development of large organizations and reduces the risk of their bankruptcy. Medium-sized enterprises get the opportunity to grow and form corporations.
Investments
To increase the profitability of the company, its leader must properly manage investment resources. Clean and gross investment influence the development of a private or state business entity, as well as ensure their normal functioning. They are aimed at stabilizing the organization's resources and increasing them.
What are the contributions
Classifying investments according to the method of accounting for funds, they can be divided into net and gross.
Net investment is cash flows aimed at increasing the capital of the company involved in ensuring the normal functioning of the economic system and improving the standard of living of project participants. Gross investments include investments in fixed assets. They consist of paid construction services, the object of which is production facilities, the cost of purchasing new or additional equipment, as well as the cost of modernizing it. They reflect the total of net investment and depreciation, which covers the depreciation of fixed capital and its restoration to its original state. Net investment is an integral part of gross financing, so it is difficult to identify parameters by one type.
Gross investment objects
Types of investments
One of the elements of gross investment is fixed capital. It contains funds for the restoration of its used part in the form of moral and physical wear and tear. At his expense, work is carried out on the modernization and reconstruction technological lines, as well as to upgrade equipment and change technology to modern methods that provide high performance performance.
Working capital, presented in the form of stocks of raw materials, materials and finished products, is not included in gross investment in full. Since only changes in parameters over a given time period are taken into account in the calculation of the value, with a general increase in gross investment, contributions to working capital can be expressed as a negative number.
The inclusion of intangible assets in the composition of investments can be identified as the right to property or possession in relation to real estate. Trademarks, brands, licenses, inventions, patents and software products are also constituent elements of the parameter.
The composition of gross investment includes contributions to the improvement of human potential and to ensuring a decent level of parameters social sphere. Raising the qualifications of employees, improving their living conditions, payment for the education of the children of employees of the organization, suggest an increase in the profitability of production. This is due to the high qualification of employees and their rapid recovery of physical and moral strength, due to the creation of normal living conditions.
Structure of gross investments
An indicator that identifies the state of gross investment is taken into account in the system of economic criteria for an individual enterprise and is used in the calculation when compiling statistical reporting. It is included in the system of parameters of national public accounts and helps to evaluate macroeconomic indicators.
The economy of the state consists of a combination of large industries, mid-level businesses and small businesses. People planning to open their own business, or expand an already operating business, need to have at least minimal knowledge economic theory and learn how to put it into practice. financial literacy implies understanding of special terms. Investing should start with profit forecasting. Doing investment policy on an intuitive level will inevitably lead to ruin, do not be too lazy to learn the basics of the economy, this will save capital and even increase assets.
In order for the business to work for many years, competent entrepreneurs understand that it is impossible to spend all the profit on their own needs, part of the profit should be directed to the development of the enterprise. The initial investment in a business can be so large that own funds the owner no longer has, but there is no tangible profit yet. If the project is not of interest to the state or local authorities, and funds for development are not enough, private investment can come to the rescue. They can be obtained by issuing shares on the domestic market.
Attention! The entire amount of funds received from the sale of shares is called gross investment.
What in simple words gross investment is money that can be spent on the purchase of materials, the purchase of raw materials, the purchase of new equipment and the construction of new workshops or other buildings that are involved in production, plus the depreciation of existing machines and buildings.
Composition of gross investment
For the economy of the country and an individual enterprise, the indicator of gross investment indicates the true state of affairs. It allows you to make a forecast for the further development of individual objects of private business, state enterprise or the economy of the country as a whole.
Important! Gross investment is the amount of investment that is directed to refurbishment and development.
They are calculated according to the formula: And in \u003d A + And h, where And in this is gross investment, A is the cost of depreciation, And h is net investment. Based on this, we can conclude that the object of gross investment is fixed capital, which is involved in the production of goods and services.
Tangible assets
- Replacement of the technical component of the production process;
- Acquisition of technologies to reduce the cost of the final product;
- Reconstruction of equipment and its modernization;
- Housing construction costs.
For analysis economic condition enterprises should take into account that not the entire volume of investments in working capital for the entire period of existence of production is considered, but only fluctuations in a separate time period. Based on this analysis technique, one can observe overall growth investment, and reduced investment in working capital. On an example, such a situation may look like this: the enterprise has implemented modern technology, due to which the consumption of raw materials decreased, the final cost of the product decreased. Investments in the purchase of raw materials have been reduced, and the released funds can be directed to other purposes.
Development of the social sphere
In addition to material investments, gross investments can be used to social projects, raising the cultural level and education of the employees themselves and their children. By investing in this area, the investor does not engage in charity, but counts on higher productivity of highly skilled labor. In addition, a person whose life is fully adjusted is capable of a higher return than an employee burdened with debts and having no home.
The difference between gross investment and net investment
Despite the apparent similarity in terminology, do not confuse net and gross investments. Net investments are part of the gross. Another part of gross investment is the compensation of expenses for the restoration and renewal of capital.
Important! In accounting, there is a separate expense item, which takes into account depreciation funds.
To restore fixed capital, transfers are made, which are calculated by transferring the value of fixed capital to the product of production for the reporting period. The choice of amounts for deductions to the depreciation fund is not random, but is calculated according to a coefficient, the indicator of which varies for each type of equipment or buildings. Service life standards are 1-10 years for equipment and up to 50 years for real estate. The end of these regulatory deadlines does not mean at all that serviceable equipment will be decommissioned, and a non-emergency building is subject to demolition. The work will continue, the fixed asset is also on the balance sheet, only depreciation is no longer charged.
Intangible assets
In addition to factories and steamships, intangible assets also participate in production. So, all buildings are located on land plots, and without determining the ownership of the land, it is impossible to build on it. Intangible, but very expensive assets include all kinds of rights:
- To plots
- For deposits
- On logos, company names and trademarks;
- Licenses, patents and software.
The value of intangible assets is comparable to the value of tangible assets, and sometimes exceeds it.
Sources of financing
Investors may use their own and borrowed funds, attract from investors. Budget resources can also become a source of gross investment, they are attracted to finance objects of particular importance to the state. Raising capital serves to reduce the risks of the business owner and gives the opportunity to control the object.
How quickly you can find out by reading our article.
The role of gross investment in the macro and micro economy is enormous, because development is impossible without capital inflow. Investment can be spent on depreciation deductions, purchase of raw materials, acquisition of patents, purchase Vehicle, construction of structures that will subsequently be involved in production.
Key Difference: Gross investment refers to the total expenditure on the purchase of fixed assets over a certain period of time, excluding depreciation. On the other hand, net investment includes depreciation and is calculated by subtracting depreciation from gross investment.
Investment refers to the amount invested in the acquisition of financial assets. Investments are made in order to get a good target income within a certain period of time. Target income can be in any of the forms such as an increase in the value of assets or valuable papers. It may also refer to regular income derived from securities or assets. Exist different kinds investments such as autonomous, spin-off, financial, real, planned, unplanned, gross and net.
Gross investment refers to the amount invested in the purchase or construction of new capital goods. Net investment is also related to gross investment. This is basically gross investment minus the depreciation of existing capital. This depreciation is related to some of the investments that need to be made to replace obsolete or depreciated assets such as plants and equipment.
Or we can say that, Net Investment = Gross Investment - Depreciation
If gross investment exceeds depreciation over any period of time, then this directly indicates that net investment is positive, which also means an increase in fixed capital.
Similarly, if gross investment is less than depreciation, then in that case net investment tends to be negative and the capital stock decreases.
To understand the difference, consider this example: a factory starts the year with 20 machines. He buys 5 cars. 10 cars are worn out. Now the gross investment refers to the purchase of new machines, which is 5, while at the end of the year the total number of working machines = 20 + 5-4 = 21. This results in an actual increase of 21-20 = 1 machine. which reflects net investment.
Thus, gross investment is the total amount spent on goods for the production of other goods and services, while net investment is the increase production stocks.
Comparison of net and gross investments:
Net investment | Gross investment |
|
Definition | It is calculated by subtracting capital depreciation from gross investment. | The total amount spent on the purchase of new assets |
Net Investment = Gross Investment - Depreciation | Gross investment = general purchase or building new capital goods |
|
meaning | It helps to understand how much money is spent on capital objects, taking into account losses such as Maintenance, wear, etc. Thus, it helps to expand operations and improve efficiency. By neglecting depreciation, you can run into special situations associated with obsolete or worn devices. | Helps in determining the total cost of capital goods |
Includes | Changes in equity | All new investments
|
Indicator | Generally considered a better indicator than gross investment | Not considered better than net investment |
Essence of gross investment
There are several approaches to the concept of gross investment:
- The first approach is expressed at the macroeconomic level. Gross investment is the total amount of investment in the country's economy in the aggregate.
- The second approach considers gross investments as investments that are aimed at supporting and increasing the volume of fixed capital of the enterprise and reserves.
- The third approach implies under gross investment all the total investments of the investor that were made in the investment project.
Consider gross investment in terms of investments in fixed assets and stocks.
Remark 1
Under this approach, gross investment includes depreciation, as well as net investment (that is, minus depreciation). In this case, depreciation acts as an investment resource, since cash deductible for depreciation in the present are "temporarily free" cash. Net investments assume investments in the improvement of production activities, new investment projects. Often in this aspect, gross investment is called capital investment.
Further, gross investment is considered in the aspect of the second approach. Since the consideration of gross investment as a source of growth for the fixed capital of an enterprise is the most important in the aspect of microeconomics.
Consider the composition of gross investment.
Composition of gross investment
Since the main object of the type of investment under consideration is fixed assets, the following possible composition of gross investments is distinguished:
- deductions for the restoration of capital involved in production activities at the enterprise, using depreciation mechanisms, deductions for the restoration of technical and obsolescence of equipment, fixed assets, which are on the balance sheet of the enterprise;
- replacement of the production facilities of the enterprise with more modern equipment and fixed assets;
- modernization, renewal of production;
- investments aimed at the construction of buildings, structures.
Also, the composition may include not only investments in fixed assets, but also in intangible assets. For example, in the acquisition of patents, know-how, trademarks and brands, licenses for certain activities, software and software products.
So, in general, gross investments can be divided into two groups:
- investments, the purpose of which is the restoration and renewal of production, fixed assets (depreciation);
- the second group - investments that are aimed at increasing the volume of the enterprise's capital, increasing assets (net investments).
main sources
Among the sources of gross investment, investors' funds, loans from banking institutions, state funds (state support), funds from exchange trading, depreciation funds are distinguished.
Formula for calculation
Consider the calculation of gross investment in the enterprise. The first considered group of investments is calculated as depreciation corresponding to the fixed asset and deductions for depreciation.
So, the formula for gross investment is presented below.
Gross investment in the period under review = Depreciation in the period under review + Net investment in the period under review
This formula is also used in macroeconomics to calculate the total gross investment in the country. Also, the total gross investment in the country is used to calculate the Gross Domestic Product on expenses.
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