investment

(noun)

A placement of capital in expectation of deriving income or profit from its use.

Related Terms

Examples of investment in the following topics:

  • Return on Investment

    • Return on investment (ROI) is one way of considering profits in relation to capital invested.
    • Return on investment (ROI) is one way of considering profits in relation to capital invested.
    • The purpose of the "return on investment" metric is to measure per-period rates of return on dollars invested in an economic entity.
    • Return on investment (%) = Net profit ($) / Investment ($) × 100
    • Return on investment = (gain from investment - cost of investment) / cost of investment

  • Direct Investment

    • Foreign direct investment (FDI) is investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.
    • FDI is in contrast to portfolio investment which is a passive investment in the securities of another country, such as stocks and bonds.
    • However, identifying the conditions that best attract such investment flow is difficult, since foreign investment varies greatly across countries and over time.
    • Sao Paulo, Brazil, home to a growing middle class and significant direct investments.
    • Explain the effects of foreign direct investment (FDI) for the investor and the host country

  • Joint ventures and direct investment

    • Both partners invest money and share ownership and control of partnership.
    • Thus, they will invest in wholly owned subsidiaries.
    • An organization using this approach makes a direct investment in one or more foreign nations.
    • However, subsidiaries require more investment as the subsidiary is responsible for all marketing activities in a foreign country.

  • Payback, ROI and renewable energy

    • The long-term financial rewards of renewable energy cannot be understood without comprehending ‘payback' or return-on-investment (ROI), both of which measure profitability in relation to capital expenses.
    • The payback period of the €50,000 investment, which is based on the annual market cost of electricity if the switch to renewable energy had not been made (€10,000) is therefore 5 years (€10,000 x 5 years = €50,000).
    • ‘Return-on-investment' is usually expressed as a percentage, so it is 20% (of the original investment) per year.
    • Note that accountants typically like to see financial investment estimates in terms of ROI, while almost everyone else prefers to see the ‘payback' period of an investment in terms of months or years.
    • Again, the ultimate payoff isthat at the end of the payback period, the business receives free electricity (minus maintenance and disposal costs) which is why renewable energy can be a smart investment.

  • Alternate Sources of Funds

    • The cash flow statement, which shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.
    • Cash inflows from investing activities involve cash flows associated with non-current assets:
    • The cash flow statement shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

  • The Prevalence of Small Businesses

    • Industries with high concentrations of small and medium businesses generally do not require enormous capital investment up front.
    • Industries with a high concentration of small and medium-sized businesses (SMBs) generally do not require an enormous amount of capital investment up front.
    • For example, it is not likely that you would start a company to build airplanes, as that would take a large investment of capital for property, plant, equipment, and labor.
    • This requires a large initial investment of capital and access to low-cost labor, which are both tough for SMBs to access domestically.

  • The Role of Financial Managers

    • Financial managers ensure the financial health of an organization through investment activities and long-term financing strategies.
    • Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure.
    • Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.
    • Achieving the goals of corporate finance requires that any corporate investment be financed appropriately.
    • Treasurers and finance officers direct their organization's budgets to meet its financial goals and oversee the investment of funds.

  • HR Metrics

    • He wanted substantive proof, validation that his HR investments were paying off" (Grossman, 2006).
    • Evaluations can be viewed as company projects or investments in this case.
    • Another measure is payback period, "The payback period of an investment is the period of time required for the cumulative cash inflows (net cash flows) from a project to equal the initial cash outlay (net investment)" (Moyer, McGuigan, & Kretlow, 2006).
    • The payback period is measured by the net investment divided by the annual cash inflows as a result of that investment; this measure will give a company an idea of how long it takes the project to earn by its cost.
    • This will put the value of the HR project in monetary terms like any other investment for the company.

  • Financial Plan and Forecast

    • Financial planning aims to ensure that a firm is properly capitalized and makes appropriate investments.
    • Financial planning is important in ensuring that corporate investment is financed appropriately, as well as seeing to it that money is spent in worthwhile investments .
    • Achieving the goals of corporate finance requires that any corporate investment be financed appropriately.
    • Financial planning is important in ensuring that corporate investment is both financed appropriately, as well as seeing to it that money is spent in worthwhile investments.

  • Day-to-Day Needs

    • Operating cash flow refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.
    • The International Financial Reporting Standards (IFRS) defines operating cash flow as cash generated from operations less taxation and interest paid, investment income received and less dividends paid.
    • Cash equivalents are distinguished from other investments through their short-term existence; they mature within three months and have insignificant risk of change in value.