Investment in fixed capital is an investment of funds in the modernization of equipment, buildings, transport of the company in order to develop the business and increase the profit of the organization. The profitability of the enterprise tomorrow depends on how competently financial resources are allocated today. Therefore, investing can be defined as one of the most important moments in the life of any company. Today we will analyze how to correctly conduct the investment policy of a company. And at the end of the article, you can read recommendations on how to attract investors.
As you know, the efficiency of the enterprise is associated with the state of its fixed capital, which predetermines the production capabilities of the organization, the speed and scale of its development.
The size and quality of fixed capital have a direct impact on the competitiveness of the organization, its place in the market, as well as the financial results of its functioning.
The value of all property of the company in monetary terms is its fixed capital, which is divided into fixed and circulating.
Fixed capital (another name is fixed assets) means means of labor that exist in an unchanged form:
- other structures;
- perennial plantings;
- working and productive livestock;
- licensed products;
- funds of the organization.
In accordance with the basic definition, fixed assets are considered objects, the value of which exceeds 10,000 rubles. In addition, they must be used for more than one year.
In fact, the fixed capital does not participate in the turnover of the organization and remains in the ownership of the owners. The circulating part of capital is raw materials, materials, energy. The funds involved in the turnover are used once and immediately pay off. Items that are used for less than 1 year are taken into account in the revolving fund.
The essence of investment
The main task of any enterprise is to make a profit.
In addition to a powerful marketing strategy, this requires a high-quality final product that will win a permanent sales market. To get ahead of the competition and stay on top, the work of the enterprise requires constant updates:
- installation of modern equipment, which often leads to an acceleration of the production process and a decrease in costs;
- introduction of new technologies to improve product quality;
- launch of a new production line to expand the range.
In addition, in the process of work, there is wear and tear of inventory, machines, rooms, machines and other objects that are included in the main fund of the organization. All this requires an investment of money for the restoration and renewal of labor tools.
Fixed capital investments are presented:
- Construction of new buildings, current and major repairs of existing premises;
- Purchase and installation of new equipment;
- Updating tools and household equipment;
- Purchase of new vehicles for the company;
- Issue of securities (bonds, company shares) and their sale in order to attract additional capital for development;
- Brand development, obtaining a patent or copyright registration.
All these actions are aimed at improving the efficiency of the company. At the same time, this category does not include:
- purchase of fixed assets that were in use from other firms;
- purchase of apartments in multi-storey residential buildings;
- purchase of land plots;
- expenses for obtaining a license permit, rent, advertising.
Sources of investment
Financial injections into fixed assets come from two sources:
- own funds;
- attracted investments.
The first group includes the company’s income and deductions for the depreciation of fixed assets. The funds raised are formed from:
- bank loans;
- loans from other organizations;
- budget resources;
- private finance;
- investment investments of different levels.
According to statistics conducted by Rosstat, the preferred investment targets are:
- Installation of new equipment – 65% of enterprises
- Automation of the production process – 45%
- Reducing the cost of production – 39%
- Reduced electricity consumption – 40%
- Modernization of the technological process – 35%
- Environmental protection – 32%
- Increase in the number of manufactured products – 30%
- Attracting new staff – 20%
Considering all of the above points, we can firmly state that without sufficient investment in fixed assets, an increase in the economic viability of an enterprise, an increase in profits and production volume is unlikely.
Where to invest
The structure of investments in fixed assets depends on the target area for which funds are attracted.
Most of the investment capital is spent on construction work (about 59%), the rest is spent on the modernization of the fixed assets.
The most promising areas are considered to be:
- Investments in the construction of production facilities. Considered as a long-term investment.
- Investments in shares and other securities. The investment period in this case is determined by the company.
- Cash in an intangible fund. This group includes innovative developments.
- Purchase of equipment, inventory, tools.
The last point can be attributed to investing with a high probability of risk. The fact is that the equipment requires large financial investments, but it reaches the level of profitability after a long period of time. In addition, other circumstances can affect the investment efficiency: equipment breakdown, decrease in consumer demand.
To attractive industries in which they are interested investors, relate:
- Agro-industrial direction;
- Medical centers;
- Tourist facilities;
- Catering business.
When investing in the fixed capital of an enterprise, the investor preliminarily evaluates the work of the organization.
It is the level of the company’s success that determines the effectiveness of investments in its fixed assets. Therefore, before investing money, it is advisable to calculate the degree of return on investment.
Before making a final decision, you should pay attention to the following aspects:
- The prospects of the industry in which money will be invested.
- Decide what type of fixed assets and the number of enterprises will be invested in.
- Calculate the scale of investments in stages: initial, for a month, a decade and other time intervals.
- Approximate calculation of the payback period of the investment project.
- Forecasting the profitability and net profit of the company.
- Market analysis, risk forecasting, strategy development, taking into account any scenario development.
Additionally, you should pay attention to factors that can affect the production process:
- the number of competitors that produce similar products;
- competent organization of the enterprise,
- efficient use of production facilities;
- the degree of rationality of the use of investment funds;
- social and economic situation in the country;
- features of the tax system.
Investment policy of the enterprise
For the successful development of the company in the future, the organization provides for a set of measures in relation to the rational use of investment investments, their correct combination and use.
This part of the strategic plan is called the investment policy of the company, the formation of which takes place in 3 stages:
1.Assessment of the need for enterprise development
The first stage includes identifying profitable directions for the development of the company. For this:
- analysis of consumer demand for products;
- forecasting potential needs and their number;
- calculate how much the price of goods will change after modernization of the production process;
- identification of promising opportunities for the company;
- analyze the activities of the enterprise for the past period and identify shortcomings.
2. Development of investment projects
There is an active attraction of investments, a strategic plan is being developed, priority areas of investment in fixed assets are determined.
3.Choosing a profitable project
The final approval of actions for beneficial development takes place, for which it is necessary:
- calculate the amount that will be needed for the purchase of equipment and other necessary fixed assets;
- determine the exact cost of goods after the update;
- assign the amount of future investments;
- analyze sources for investment, what part will be provided with own funds, and how much needs to be received from external investors;
- calculate the level of project efficiency and possible risks.
Investment strategy development
Drawing up a preliminary plan with the definition of strategic goals and objectives is necessary to choose the right path that will ensure the maximum financial return from the enterprise within a clearly defined time frame. Choosing the right investment strategy will not only lead to business growth, but will also attract investors.
Simply put, having considered the formed strategic plan, it should become clear what investments in fixed assets will be needed, how much money and what they need to spend, what result can be obtained and how much time is needed for this.
The investment objectives of the strategy must meet the following parameters:
- investment policy should be subordinate to the key goal of the enterprise;
- striving for maximum results;
- clear wording;
- specific calculations;
- consistency and validity of the planned indicators;
- flexibility of goals.
The investment strategy involves the preparation of documents that reflect the goals of investing in a given enterprise, confirms the level of efficiency and their achievement with settlement documentation. All this is needed to increase the assets of the company by earning more profit, which depends on a well-chosen investment project.
Where and how to find investors
The company can find financial support from credit institutions, investment funds, private investors…
The main condition for success is the competent attraction of those wishing to invest in a particular enterprise.
For this, it is important that the investment project had a certain attractiveness, which can be achieved with a high level of efficiency.
So, the main task is to find people who will willingly invest in the company’s fixed capital. To do this, you need to be able to advertise your organization, draw the attention of potential investors to all the benefits of cooperation with your company:
- Submit a transparent business plan indicating the current state of affairs and development trends in the future. Moreover, it should contain a detailed description of all stages.
- Pay attention to the importance of a properly executed package of documents. Investors will also need the company’s current reporting.
- Create attractive conditions for cooperation. This can be an offer to take part in the management of the company, providing additional privileges.
- Make an interesting presentation, visually demonstrate the benefits of your project.
After a successful search for those interested in financial injections, we can safely assert about positive trends in the further development of the enterprise.
Of course, investments in fixed assets can be defined as a painstaking and troublesome way to expand a business, attract new partners, and increase the profitability of an enterprise. For a favorable outcome, having received funds, you need to correctly distribute investments. But first it is advisable to conduct a thorough analysis of all aspects of the transaction and only after that make an informed decision.
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