Capital is money, goods, productive form. The circuit starts with money. To expand production, you need to have funds, invest them in business. Having sought and invested the amount in the enterprise, the person thereby uses investment capital. The term refers to additional money used to purchase production assets, implement projects, in order to provide greater than before, profit.
Where do the legs grow from?
The enterprise receives investment capital from the owner’s own funds and borrowed foreign resources. The first is retained earnings with deductions for depreciation. The second involves some free funds that are issued by individuals, legal entities, and the state. Such funds are the main object of operations using securities.
Any savings become investments if they are spent on the acquisition of production elements. They are the only source of investment capital. Funds arise when income is received by individuals, corporations, when the government receives income, and the amount is greater than the expenses of this entity.
Objects and income
Traditionally, own investment capital is used to expand enterprises much less often than attracted, since the facility rarely has sufficient available funds. The classic source of raised money is corporations. About 60% of the total investment market is formed by such saving objects. This is especially true for a developed power. Many corporations have much higher needs than savings, which is why the business sector has traditionally been considered the ultimate borrower.
The inhabitants have some income, part of which they traditionally try to preserve. People are especially active in this, if there are incentive programs. Investing funds allows an individual to secure additional income. Such a sector forms up to a third of all savings within the state.
Power and what is beyond it
Investment capital is created to expand production capabilities. It can be borrowed by contacting the state, but in general, the state is considered a net borrower. Authorities often attract money themselves to cover the budget deficit.
Foreigners can both borrow money and act as investors, since they save and increase funds. In practice, for example, the Western powers always have a negative balance of investments with the Eastern and Southern, therefore Western countries are considered net creditors.
About varieties
Analyzing the goals of investment capital, the conditions for obtaining the status of a participant in a particular project, several groups can be distinguished. Perhaps risky investment, direct investment, annuity and portfolio.
Venture capital is a risky investment. It is accompanied by the creation of shares, the activity of the enterprise in a new area where the dangers are above average. This type of investment is carried out in a company without a mutual relationship. The main idea is the fastest payback. An investor buys part of the shares or offers a loan to a company in need, allowing them to transform this money into shares.
Direct format involves the introduction of finance in the authorized capital to ensure income. Portfolio investment is the creation of a portfolio through the purchase of securities and assets. A portfolio is a set of values that allows you to achieve your desired goal. You can make a portfolio of stocks or different types of values.
Effective or not?
The profitability and cost of investment capital are the main monetary parameters that are significant for the investor. To evaluate a specific project, determine the coefficients that indicate the degree of loss (profitability). When calculating, you need to know how much money is invested in the company. Indexes are usually shown as a percentage. The indicator is calculated by assigning profit or loss to the total amount invested. Profit can be calculated in the form of interest, totals through accounting, according to the management account. You can take into account indicators of net profit (loss). Investments include assets, capital, the main debt of the enterprise and other formats that can be described by the amount of money.
Nuances of calculation
To calculate how effective investment capital is, one should evaluate its effectiveness. To do this, calculate the total profit for the entire period of ownership of the asset, correlate it with the value invested. This indicator reflects the profitability for the time during which the investor has assets in possession. It reflects how the amount invested increased during the study period.
To make it easier to compare investment capital to a person who invests in different periods or for different periods, a form of annual allocation has been devised. To assess profitability, you need to correlate its value and the duration of ownership of the asset.
Investing is useful
Currently, many ordinary people who have some income are thinking about how the phenomenon of investment capital applies to them, whether they can act as investors. Many have heard about investment opportunities, but few can clearly articulate the purpose of such an activity. For a person who has the means, the main task is to preserve and increase their wealth, so that the amount now available has grown enough so that you can use it to purchase an expensive item. If you create investment capital, you can thereby provide yourself with a financial pillow with which a person will feel safe at any time.
Our life is fraught with many risks. To smooth out their unpleasant influence allows pre-formed investment capital. Most of our fellow citizens are trying to keep money at home for a rainy day. Some people prefer to keep funds in the bank. As experienced experts in this field say, the best option is to invest your resources in order to avoid depreciation. Money will work, and its owner - to make a profit. The larger the person’s investment capital, the better profit prospects he will have.
Formation of your portfolio
This investment format is the acquisition of a variety of assets. The main goal of the investor is to generate income. A portfolio is formed by various assets. It may include securities, real estate, antiques. Ownership of stocks, bonds usually does not include participation in management processes, and investing in this format is considered passive.
The objective of the investment portfolio is the formation of assets that will provide maximum profitability with reduced risks and sufficient liquidity. Properly planning the allocation of money, evaluating the revenue component in advance, adjusting the composition in time and getting rid of illiquid objects, you can guarantee yourself a stable financial situation in the present and future tense.