What is capital investment? Economic efficiency of capital investments. Payback period of investments

Business development involves regular investment in the company: these can be distributed in a variety of articles depending on the priorities determined by the company's management and financiers. The corresponding investments may have a capital status. What will be their specificity? How is the effectiveness of these investments assessed?

What are the capital investments?

Capital investments are funds invested in the construction, reconstruction or purchase of certain resources, which can be attributed to fixed assets or non-current assets. Depending on the stage of business development, the prevailing volume of these or other types of investment may vary. So, a normal trend is the gradual increase in the amount of investments in the reconstruction and, correspondingly, the reduction of their share in the construction and purchase of fixed assets: this is due to the greater benefit in maintaining the functionality of these resources than in acquiring or creating new ones. Especially when it comes to large enterprises, which are characterized by a one-time purchase of expensive production assets.

Capital investments are cash, which, as a rule, are accumulated in targeted corporate funds or on individual bank accounts of the company. Resources, through which the formation of these funds, are most often:

• Own revenue of the firm;
• investments;
• Loans;
• Budget revenues.

Methods of investing capital in fixed assets

There are 2 main methods of investing in fixed assets of the company.

First, there is a centralized approach. He assumes that the primary volume of investments is coordinated at the level of the key management structures of the enterprise. For example - the board of directors of a firm or parent organization, if the company is a subsidiary of the company.

Secondly, there is a decentralized method of investing in the company's fixed capital. It involves making decisions on investing in funds at the level of local management structures. For example - the service of development and optimization of domestic production.

Depending on the scale of the enterprise, the specifics of the current local standards, corporate culture of the company, this or that method of investing corporate capital in fixed assets prevails.

Payback period and economic efficiency of capital investments

The payback period of investments in capital funds is very different when comparing economic indicators between different enterprises. As a rule, it is much smaller in small businesses than in large businesses. Updating the main production assets of a small factory involves investing in investments, which usually pay off within 3-4 years. A large plant with similar modernization should work, as a rule, about 10 years before the capital will be returned in the form of profit at the expense of added value.

Let's consider how the estimation of economic efficiency of capital investments can be carried out. Actually, how fast the economic effect of the corresponding investments will be, largely determines the success and competitiveness of the company.

Under the economic efficiency of the investments in question, in the general case, the ratio between costs associated with the construction, reconstruction or purchase of fixed assets and the results in the form of profit is understood. Sometimes the return on investment as the main criterion for assessing the effectiveness of investment in fixed assets is complemented by other indicators. For example - the dynamics of expanding the presence of the brand, its recognizability in the consumer sphere. Both trends can be observed even with the most outstanding economic indicators.

In all cases, the direct result of investing in fixed assets is an increase in the production capacity of the firm or a qualitative change in it. This means that the company gets the opportunity to produce more volume of goods or more technological products. Another question is whether this will be accompanied by a reduction in costs. The fact is that the reduction in expenses does not always depend on the priorities of the company's management regarding the renewal of fixed assets. In this line of activity, indicators such as labor productivity in the firm, the level of saving resources, fuel, the efficiency of logistics, and the manufacturability of the available infrastructure are important.

To the corresponding indicators, capital investments are not always directly related. The economic efficiency of capital investments, therefore, should be assessed with an amendment to the fact that many of the conditions for business growth do not depend on the volume and intensity of the corresponding investments. However, the management of the firm can not neglect the desire to build the most balanced model of investment in fixed assets. Let us consider the main criteria for solving this problem.

Key criteria for ensuring the effectiveness of capital investments

Experts identify the following list of criteria in question:

• Effective investment planning;
• Search for the most technologically advanced projects for the construction and reconstruction of fixed assets, advanced solutions for ready-made non-current assets;
• Priority of economic feasibility of investments;
• Studying the experience of other businesses;
• The involvement of competent experts in making decisions about investing in fixed assets.

Each of these criteria is of great importance. The task of the company's management is not to neglect those that may be secondary to the specifics of production. If this can not be avoided, but at the same time, competitors can meet this criterion, then, other things being equal, their business will develop more successfully.

Types of economic efficiency of investments in fixed assets

Experts identify several ways through which you can analyze the results of this direction of financing, as capital investments. The economic efficiency of capital investments, for example, is of two main types. Which ones? Experts emphasize efficiency: absolute, comparative. Let's study the features of each of them in more detail.

Absolute efficiency of investing

So, there is an absolute economic efficiency of capital investments. Its essence lies in revealing a figure that shows the ratio of the increase in net output to expenditure in improving fixed assets. In this case, the goods are formed through the use of non-current assets, so the investments in question are often taken into account in a rather narrow sphere - reflecting the business area of the business. It is worth noting that the investments calculated at the expense of the depreciation fund are not taken into account when determining the effectiveness of the investments in question.

Another nuance: the calculation of the economic efficiency of capital investments should be carried out with the amendment that the monitoring of the functioning of the fixed assets proper is realized independently. The extent to which, in turn, it is effective, may not have a direct relationship to the quality of investing in production. Although, as a rule, both parameters are significantly correlated with each other.

Thus, it should be borne in mind that the overall economic efficiency of capital investments, if we speak of its absolute variety, is considered separately from capital productivity. Although the positive trends that characterize the first indicator, on the whole, make it possible to estimate the second.

Comparative investment efficiency

There is a comparative efficiency of investments in fixed assets. This parameter is considered in order to determine by management the optimal, most profitable option for implementing particular management decisions. For example, related to the updating of the company's production base. Comparative indicators of the economic efficiency of capital investments make it possible to identify which of the available schemes for implementing managerial decisions is characterized by minimal costs, as well as the minimum need for liquidity. It may be necessary to search for the optimal combination of these parameters.

Another aspect of the comparative effectiveness of investments in fixed assets is the comparison of the results of the corresponding investments and the financing of the non-productive infrastructure of the enterprise. Above we noted that the modernization of funds does not always predetermine the alignment of the leading business model, as the firm can yield to competitors in optimizing those areas of work that are not directly related to production. A comparative model for assessing the effectiveness of investments in fixed assets involves a detailed analysis by management of the relevant activities and the adoption, if necessary, of solutions aimed at optimizing business processes in such areas.

Coefficient of efficiency of investments in fixed assets

It happens that one scheme is characterized by the opportunity to save on investments, the other - to achieve a significant reduction in costs. In this case, it may be necessary to apply some normative indicator, which can be used when choosing a particular model. Among the most popular of them is the coefficient of economic efficiency of capital investments. It can be installed for a specific enterprise, industry or the economy as a whole. Some economists prefer to view it as a macroeconomic indicator for assessing the development of a firm taking into account the state of affairs in the national economy.

The considered factor for the industry can be significantly lower or higher than the national one, which is determined by the specificity of economic factors that have an impact on a particular segment. For example, in industrial production, the efficiency ratio of investments in fixed assets is generally lower than that characteristic of construction or, for example, information technology. One of the highest ratios is in retail trade. This is due to the fact that this segment is among the most profitable. Return on investment in it occurs quite quickly, however, to maintain the functionality of the business model, it may be necessary to attract capital in very large volumes.

If we talk about the macroeconomic aspect of the effectiveness of investment in funds, the indicators characterizing investments can be compared with different deflator coefficients and financial indicators. So, it is generally accepted that the efficiency of local economic indicators is compared with inflation, as well as with the refinancing rate of the Central Bank .

If the annual economic efficiency of capital investments is significantly higher than both, this may indicate a high quality of management in the enterprise. But it is desirable that the corresponding indicator is higher than inflation. Only in this case, the owners of business will make sense, from the economic point of view, to develop business. Of course, an enterprise can operate with a small profitability of capital investments, and perform important social tasks. But in this case, he will most likely need government assistance - in the form of budget subsidies or, for example, concessional lending.

Criteria for an objective assessment of the economic efficiency of investments in fixed assets

When evaluating and analyzing the effectiveness of the investments under consideration, the management of the firm should pay great attention to the objectivity of studying the results of investments in fixed assets. For this, the following criteria can be taken into account:

• Carrying out an analysis of the effectiveness of investments, taking into account the inertia of many business processes (the evaluation should not be carried out immediately after the adoption of key decisions on sending money to production, and after a certain time, in large enterprises, the results become evident only about 2-3 years after the investment is made) ;
• Accounting for the industry specificity of business (in one area, the high efficiency of investments in funds is the determining factor of profitability and business development prospects, in another it can be a secondary indicator);
• Consideration of investments in fixed assets as part of a single model of the company's economic management - along with personnel, financial policies, marketing, brand promotion.

Thus, an objective assessment of the effectiveness of investments in fixed assets involves consideration of factors that formally may not have a direct relationship to fixed assets. In some industries, certain factors will be of decisive importance, in other segments - others, due to the differences between the dynamics and content of economic processes in different enterprises.

Accounting for capital investments

Consider such an aspect as accounting for capital investments. What is it for?

First of all, the management of the company needs to control how capital investments are spent and distributed. The economic efficiency of capital investments is estimated largely based on the quality of monitoring transactions with them.

Accounting for the investments in question is carried out using account 8 of accounting. Depending on the specific direction of funding, sub-accounts can also be used. So, in the case of construction - the money transactions in this area are fixed on the subaccount 3 of account 08. At the same time, it is recommended to classify the relevant expenses on the basis of their belonging to a particular building or structure, and also to disclose on business transactions that include:

• Actually to construction;
• To installation works;
• To purchases of equipment and equipment;
• To design and survey tasks.

Depending on how the construction of fixed assets is conducted - by the internal forces of the organization or by contract, - a specific policy of accounting for such a business financing mechanism as capital investments is selected. The economic efficiency of capital investments in this case will also be assessed in different ways. This is due primarily to the fact that business transactions that are within the competence of the company itself, as a rule, are much more transparent: their monitoring is more accessible than the corresponding analyst for the actions of contractors.