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 the funds deducted for depreciation in the present are "temporarily free" funds. Net investments involve investments in improving 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 to carry out a certain type of activity, 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, and 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 by spending.

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 of economic theory and learn how to apply it in practice. Financial literacy involves understanding technical terms. Investing should start with profit forecasting. Conducting an 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 the business can be so large that the owner no longer has his own funds, and there is no tangible profit yet. If the project is not of interest to the state or local authorities, and there are not enough funds for development, 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 is gross investment in simple words - these are funds 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 a private business, a state enterprise or the economy of the whole 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.

Money

• 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.

To analyze the economic state of the enterprise, it must be taken into account that not the entire volume of investments in working capital for the entire period of the existence of production is considered, but only fluctuations in a separate time period. Based on this analysis technique, one can observe an overall increase in investment, and a decrease in investment in working capital. For example, such a situation may look like this: a modern technology has been introduced at the enterprise, thanks to which the consumption of raw materials has decreased, the final cost of the product has 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 for social projects, raising the cultural level and educating 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 expiration 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 placed 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 have the right to use their own and borrowed funds for investments, to attract from investors. Budgetary funds 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. Investments can be spent on depreciation, purchase of raw materials, purchase of patents, purchase of vehicles, construction of facilities 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 securities. It may also refer to regular income derived from securities or assets. There are different types of investments such as autonomous, side, 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 to produce other goods and services, while net investment is the increase in inventories.

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 construction of new capital goods
meaning	It helps to understand how much money is being spent on capital objects by taking into account losses such as maintenance, wear and tear, 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 Procurement of machinery, equipment and tools by enterprises Whole structure Inventory changes
Indicator	Generally considered a better indicator than gross investment	Not considered better than net investment

Investment can be defined as one of the types of economic activity of individuals and legal entities. Activity involves the investment of one's own material values ​​(capital, securities) in any object or phenomenon that has a monetary value. Funds are invested with the expectation that the value of the purchased asset will grow over the years, which will bring passive profit to the investor.

Depending on the object of investment, investments are usually classified into:

• real (actual acquisition of material assets);
• financial (purchase of securities);
• speculative (purchase of currency, commodity raw materials or securities with the expectation of a sharp increase in the asset and subsequent sale at a new market value).

Investment activities are also classified depending on the purpose of the deposits:

• direct (acquisition of company assets in order to participate in its development);
• portfolio (buying shares of several large companies in order to obtain a stable passive income);
• real (investment in production or industrial activities);
• non-financial (informational contributions to the development of the company, which can be expressed in the form of scientific developments or discoveries);
• intellectual (financing the creation of products of intellectual activity on individual terms).

According to accounting, investments are usually divided into gross and net.

Gross and net investments: concepts and meanings

Net investment is usually called the actual increase in real capital of the enterprise from third-party sources. The complexity of calculating such investments, in comparison with the calculation of gross investments, is primarily due to the depreciation of capital (loss of the market value of tangible assets under the influence of inflation and other macroeconomic and geopolitical factors).

The Role of Net Investment

To ensure the stable development of almost any enterprise, constant investments are needed in the modernization of production, an increase in trade turnover, and so on. To understand the meaning of net investment, consider the following example: the founders of the enterprise set the goal of modernizing the production base. For this they need funds. The Board of Directors decides on the issue of shares, which go to trading floors for sale. Buyers of such assets can expect to receive dividends, the amount of which will depend on the demand for the company's products and the volume of sales of finished goods. The founders of the proceeds in this way can use the funds for the needs of the organization. Such proceeds are net investment from individuals only after the completion of the auction. Both individuals and legal entities (commercial banks and investment companies) can act as private investors. As a result of such manipulations, the founders will not have to specifically find investors.

Also, net investments are personal material contributions of the founders to the development of the company.

Gross investment

Gross investment is usually understood as the investment of a private person in the development of a commercial organization. In fact, they refer to real investments aimed at increasing fixed capital or working capital. A financial investment is considered gross if an individual has made a purchase of a company's securities that are issued for the purpose of raising outside capital.

Depending on the size of the authorized capital of the enterprise, gross investments are classified into 2 groups:

• depreciation (restoration of the initial volume of trade turnover);
• investment (capital increase).

Gross investments are gross only if they led to an increase in start-up investments. Otherwise, it is a pure investment.

Calculation formula

The volume of gross investment (B) can be calculated using the formula. To do this, you need to display the amount of depreciation (A) and net contributions (H): B \u003d A + H. This formula is widely used in macroeconomics. A good example is the definition of the state's GDP in terms of spending. At the same time, the indicator of gross investment is one of the components, along with the volume of production costs and export costs.

The formula for net investment determines their volume: P=V-A.

For the development of the economy of the state or an individual enterprise, the predominance of gross investments over the amount of depreciation is important. With identical values, stagnation occurs, since the restoration of capital at the expense of only internal resources is practically impossible.

Composition of gross investments

As a rule, the composition of gross investments depends on the investment object. They may be:

• human resources;
• intangible assets;
• funds aimed at ensuring trade turnover;
• fixed capital of the enterprise.

Gross investments are aimed at the development of fixed capital. Therefore, they are used to implement the following tasks:

• amortization of depreciation of capital (physical and moral);
• modernization of production and introduction of innovative technologies;
• construction and more.

The structure of gross investments also includes investments in intangible assets:

• brands and trademarks;
• additional software;
• licensing of certain types of activities;
• acquisition of rights to land plots, deposits and buildings for both residential and commercial purposes;
• investments in the creation of intellectual property products (innovations, scientific developments, etc.).

Practice shows that it is expedient and cost-effective to use gross investments for the development of human resources. This allows you to achieve greater performance:

the best quality of productivity of a skilled workforce and the organization of comfortable working conditions contribute to less fatigue of employees and quick recovery.

Source of net investment

Sources of net investment are usually divided into external and internal. In turn, the internal ones include:

• profit;
• planned deductions for depreciation;
• profit received as a result of the sale of unnecessary property of the enterprise.

External sources of net investment include:

• bank loans;
• investments from private investors;
• profit received as a result of the issue and sale of securities;
• attracting capital from foreign investors.

Depending on the area of ​​application, private investment gives a different economic effect. They are usually divided into real and monetary. The former are aimed at developing production and increasing the number of jobs, while the latter are aimed at manipulating securities.

Usage efficiency

The effectiveness of the use of investments is determined depending on their structure. Excessive financial investments lead to a rapid rise in inflation. If additional funds are not enough, then this can lead to deflation. These extremes need to be managed through effective taxation, credit, spending, and other fiscal policies.

Investments are the first stage in the formation of a commercial organization. Thanks to investments, a material base is created for the further development of the enterprise. At the private business level, net and gross investments provide an increase in turnover and productivity in general, which in turn leads to an increase in the profit of the enterprise. Also, attracting third-party investment allows you to increase the reserve and fixed assets.

The indicator of net and gross investments at the state level allows us to draw a conclusion about the demand for goods and services produced in the country, as well as the level of GDP, determine the attractiveness for attracting foreign investment and assess the level of economic development of the state as a whole. The lack of gross investment will lead to the lack of development of education, high technology, scientific research and the health care system.

The content of the article:

What is gross investment? This is a general increase in the stock of capital, regardless of the form in which it is produced. Gross investment will include net investment and recovery investment.

Under it is customary to understand the costs of building new plants, machinery and equipment with a long service life and similar facilities.

Reimbursement investment- this is an investment in the modernization of the means of production (reproduction).

Usually gross investment is exclusively, but in gross it can be attributed, for example, the issue of shares that will be directed to the development of the company. In this case, the sale of shares will no longer be related to gross investment.

Sources of gross investment:

1. own funds and
2. Bank loans
3. State budget funds
4. Funds from share issues
5. sinking funds.

Composition of gross investments:

• Investments in capital construction
• Modernization of equipment and technologies
• Recovery of depreciated fixed assets
• Investments in land
• Discovery of deposits
• Acquisition of trademarks, patents, know-how, licenses, software
• Investments in improving the living conditions of employees (acquisition of housing, subscriptions to the gym, organization of recreation, education).

An increase in gross investment may lead to a decrease in . Thus, the modernization of technologies leads to a decrease in the need for raw materials, and gross investment in this parameter becomes negative.

At the same time, gross investment does not include the entire amount of investments in working capital, but only that part that affects the change in its volume in a specific period of time.

Calculation of gross investment. Formula

Recall what gross investments are equal to - these are net investments and investments for restoration (depreciation costs).

The formula for calculating gross investment is as follows:

VIt = At ​​+ CHIt

Where VIt = gross investment in period t

At = depreciation in period t

NIT = net investment in period t

So, CHIt \u003d VIt - At

If the volume of VI is greater than At, then the enterprise (economy) develops. If the indicators are equal, a period of stagnation has come. If Chi is a negative value, a decline phase has begun.

The formula for calculating gross investment has been successfully used in estimating gross domestic product in terms of spending.

Gross domestic product is the total value of all goods and services produced in a given period of time. When assessing GDP, income and expenses are taken into account.

GDP by Expenditure = C+G+VI+Xn

Where C = consumer spending.

G = government spending.

BI = gross investment.

Xn = net export spending.

The assessment of gross and net investments is relevant both for a particular enterprise and for the state. In the system of national accounts of the state, the indicator of gross investment is considered one of the key indicators along with GDP (gross domestic product), which characterizes the success of the country's economy as a whole.