Investment
The term investment is a concept found mainly in economics. It is an expense, often immediate, whose long-term objective is to increase the wealth of the person or company that makes it. Within a company, investment has the function of increasing productivity or saving time. Before making an investment, companies anticipate the return on investment using the ROI (Return Of Invest) ratio.
In accounting, investment is characterized by a depreciable expense that increases the company's assets. There are three types of investment according to the general chart of accounts: tangible investment, intangible investment, and financial investment.
Investment: the economic definition
In economics, investment is an expense intended to increase the wealth of the person who makes it. It is an immediate expenditure with the aim of obtaining a positive effect that can be quantified in the long term. A company can thus invest to :
- Increase its productivity by investing in new machine tools
- Gain new customers or work on its brand image by investing in an advertising campaign
- Save time
- Reduce costs and increase profits
- Investing can also be useful to maintain a turnover or to modernize its equipment.
Investment: an accounting concept
In accounting, an investment corresponds to the acquisition or creation of a durable good intended to remain in the same form for at least one year. The value of this asset must be at least 500 euros. In accounting terms, the investment is intended to increase the value of the company's assets (assets on the balance sheet) and to be subject to depreciation, the rate, and duration of which depend on its nature. The three types of investment classified by the general chart of accounts are :
- Tangible investments, which refer to the purchase of goods and buildings: buildings, factories, machinery, equipment, land, etc.
- Intangible investments, which are purchases that increase the value of the company's assets, such as patents, licenses, business goodwill, etc.
- Financial investments represent the purchase of shares or bonds and which increase the financial assets of the company.
It should be noted that the balance sheet shows the investments made for their depreciated amounts at the date of the balance sheet, called "net present value". The net present value of investment corresponds to its acquisition value minus depreciation.
Return on investment
In order to measure the gain obtained on investment, there is a financial ratio: the Return on Investment or ROI. This financial indicator makes it possible to calculate the profitability of the invested capital. To calculate the return on investment, we use the following formula: ROI = [(investment gain - investment cost)/investment cost].
The return on investment is essential data to choose between different projects and thus determine which one will bring back the most money compared to the initial amounts invested.
Investment is therefore an expense that aims to modify the operating cycle of a company. It involves spending money to earn more money. Unlike an expense, an investment is a commitment by the company. It can, for example, consist of the purchase of more efficient machines or the acquisition of new premises. Investment is a fundamental process in the life of a company, as it ensures its long-term growth. Moreover, a company can make several investments at the same time.
Post a Comment