Features of investment activity

The investment activity of the enterprise includes the following components:

investment strategy; strategic planning; investment design; analysis of projects and the actual effectiveness of investments.

Investment strategy is the choice of the way of development of the enterprise for the long term with the available own sources of financing and the possibility of obtaining borrowed funds, as well as forecasting the project and the profitability of total assets. The strategic plan involves the refinement of the investment strategy with a list of investment projects and a plan for long-term financing of investments . An investment project can be presented in the form of a feasibility study or a business plan. Recently, the form and content of the feasibility study has been adapted to the conditions of transition to the market that actually exist in society, which gives the feasibility study more and more character business plan. This is due to the fact that the purpose of both documents, the feasibility study, and the business plan is the same: to enable a business person to make sure that the project developed by him is economically feasible, i.e., that it will bring the effect that is laid in the idea itself.

There are certain features of the investment activity of the enterprise. They are as follows:

1. Investment activity of the enterprise is an integral part of the overall economic strategy of enterprise development. The main tasks of the economic development of the enterprise require the expansion of the volume or renewal of the composition of its assets, which is achieved in the process of various forms of investment activity. A feature of investment activity is also the fact that the volume of investment activity of the enterprise allows you to assess the pace of its economic development. They are characterized by two indicators: the sum of gross investment and the sum of the net investment of the enterprise.

Gross investment is the total amount of investment of funds in a certain period of the enterprise’s activity aimed at creating, expanding or updating production fixed assets, acquiring intangible assets, increasing inventories of inventory.

Net investment is the amount of gross investment for a given period, reduced by the amount of depreciation and amortization for the same period.

It is the dynamics of the amount of net investment that determines the nature of the economic development of the enterprise, and the potential for the formation of its profit. In the case when the amount of net investment is greater than zero, i.e. the volume of gross investment exceeds the amount of depreciation deductions, this means that the enterprise is provided with an expanded reproduction of fixed assets and such an enterprise is called growing.

When the sum of net investment is zero, the enterprise has no economic growth, since the production potential of the enterprise, despite the investment, remains unchanged. In this case, only the renewal of the fixed capital takes place at the enterprise.

If the amount of net investment of the enterprise is a negative value, then it can be concluded that its production potential is decreasing, i.e. there is no renewal of funds at the enterprise.

2. The cyclical nature of investment activity, which is due to the need to compensate for the moral and physical deterioration of fixed assets, as well as the expansion of production that occurs at certain intervals. During this period, there is a preliminary accumulation of financial resources.

3. Diversity of investment costs and results. The size of this period depends on the form of the investment process carried out by the enterprise. There are three main forms of the investment process: sequential, parallel, interval. With a parallel course of the investment process, the formation of investment profits usually begins before the full completion of the capital investment process. With a consistent course of the investment process, the investment profit is formed immediately after the end of the investment of funds. In the case of an interval course of the investment process, there is a certain time interval between the period of completion of capital investment and the formation of the investment profit of the enterprise.

4. Possibility of investment risks. These risks are primarily associated with changes occurring in the external environment (tax system, market conditions, currency regulation, etc.).

For an enterprise, the sources of investment activities can be:

own financial resources and internal economic resources of the investor, which include the initial contributions of the founders at the time of organization of the enterprise and part of the funds received as a result of economic activity, i.e. at the expense of profits, depreciation deductions, funds paid by insurance bodies, etc .; borrowed financial resources of the investor, which are a bank loan, an investment and tax credit, a budget loan, etc .; attracted financial resources of the investor, funds received from the sale of shares, shares and other contributions of legal entities and employees of the enterprise – funds received in the order of redistribution of their centralized investment; funds of concerns, associations and other associations of enterprises; funds of foreign investors provided in the form of financial participation in the authorized capital of joint ventures, as well as forms of direct investments in the form of money of international organizations and financial institutions, states, enterprises of various forms of ownership, private individuals. Attraction of foreign investments ensures the development of international economic relations and the introduction of advanced scientific and technological achievements. Depending on what sources of financing the enterprise attracts to finance its investment activities, the main forms of investment financing are distinguished: self-financing; credit financing; equity or mixed financing.

Self-financing is the financing of investment activities entirely at the expense of own financial resources formed from internal sources. This form of financing is usually used for the implementation of short-term investment projects with a low rate of profitability.

Credit financing is used, as a rule, in the process of implementing short-term investment projects with a high rate of return on investment. The peculiarity of borrowed capital is that it must be returned on conditions determined in advance, while the lender does not claim to participate in the income from the sale of investments.

Equity financing is a combination of several sources of funding. This is the most common form of financing investment activities, it can be used in the implementation of various investment projects.

When choosing sources of financing investment activities, the issue can be solved by the enterprise taking into account many factors: the cost of attracted capital, the effectiveness of return on it, the ratio of own and borrowed capital, which determines the level of financial independence of the enterprise, the risk arising from the use of a particular source of financing, as well as the economic interests of investors.

Investment project: concept and main sections

The investment project is a justification of the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation and standards (norms and rules) approved in accordance with the established procedure, as well as a description of practical actions for the implementation of investments (business plan).

It also reflects a study of the technical, economic, environmental and financial possibilities of making investments with a given profitability.

The business plan of the investment project is a standard form of presentation of investments, generally accepted for all developed countries. Planning methods and criteria for assessing the effectiveness of investment projects are the economic language of oral communication that ensures mutual understanding of owners, entrepreneurs, investors, bankers, employees of state institutions and international financial organizations. For large investment projects, the feasibility study and business plan differ in the degree of detail of the studies and the set of accompanying documents. For small investments, a feasibility study and a business plan can be equated.

Depending on the specific type of investment, the company formulates the requirements for the investment project being developed. For such forms of investment as the replacement of equipment or the acquisition of certain types of intangible assets, i.e. for forms of investment that do not require large financial investments and are financed only from the firm’s own funds, the investment project is an internal document. Such a project, as a rule, includes an abbreviated list of sections and indicators, while the purpose of the investment project, its main parameters, the amount of necessary financial resources, as well as performance indicators of this investment project and the schedule of its implementation are necessarily considered.

In the case of such forms of real investment as new construction, reconstruction, which require a large amount of financing, the list of requirements for the investment project increases significantly. Since this involves the attraction of external financing and for the implementation of which external sources of financing are attracted, the investor or creditor must have a complete understanding of the investment project in the financing of which he participates. In this case, the investment project includes geological studies, technical designs of buildings and structures, technical preparation of production, environmental studies of the impact on the environment, marketing research, calculation of financial and economic indicators, the amount of necessary financial resources, the timing of the return of funds additionally attracted from external sources.

Thus, the investment project allows, first of all, the enterprise, and then external investors, to comprehensively assess the expected effectiveness and feasibility of making specific real investments.

Creation and implementation of the investment project include the following stages:

selection and preliminary substantiation of the investment plan (idea); research of investment opportunities; feasibility study of the project; preparation of research and project documentation; construction and installation works; preparation and mastering of production; operation of the facility and organization of production.

In accordance with UNIDO’s recommendations, the investment project should contain a certain list of main sections. These sections are shown in Figure 9.2.

Any investment project begins with a brief description of it, in fact, this section is a generalization, and is developed, as a rule, last, after all the other sections have been prepared. The characteristics of the project include a list of all resources, including financial ones, necessary for the implementation of the project, the timing of the project implementation and the return of invested funds, as well as an assessment of the economic and financial efficiency of the project and its social significance.

The next section of the investment project is “The main idea of the project”. This section discusses the most important parameters of the analyzed project, which serve as determining indicators for its implementation. Here, as a rule, the characteristics of the initiator of the investment project are given.

The section devoted to the analysis of the market and the concept of marketing presents the results of the analysis of the market potential, as well as the results of marketing research, the subjects of which are supply and demand, existing prices, market segmentation, elasticity of demand, the main competitors. The chosen concept of marketing, which will be used in the implementation of this investment project, i.e. actually the program of retaining products or services on the market, is considered.

Justification of the volume of material resources required in the process of implementing the investment project includes the classification of the types of raw materials and materials used, the amount of need for them at all stages of the implementation of the investment project. The availability of basic raw materials in the project area is also analysed. A program for the supply of raw materials and materials is being developed, the costs associated with them are estimated.

The section “Characteristics of the technical foundations of the project implementation” should contain a production program and an analysis of the production capacity of the enterprise. This section provides a rationale for future technology and also discusses the fleet of equipment needed for implementation.

The section “Project Location” contains a justification for choosing a specific region for the implementation of the project, an analysis of the production and commercial infrastructure, market and resource environment and assesses the possibility of environmental problems in the implementation of the investment project.

“Management organization” includes a description of the organizational structure of the enterprise with the justification of its specific form and the existing management system. This section discusses the organization of labor activity of production and managerial personnel, including wage issues, as well as the size and structure of overhead costs associated with ensuring the work of production and management personnel.

The section “Necessary labor resources” contains requirements for the main categories of personnel of the company, indicates the system of personnel formation and the possibility of searching in the region for the most important specialists for production.

The project implementation schedule is a rather important section, since it justifies the individual stages of the investment project and considers the need for financial, material and labor resources at each stage.

The final section is a description of the financial support of the project and its effectiveness. This section contains an assessment of the required amounts of investment, possible production costs, as well as a justification for how to obtain investment resources and a calculation of the effectiveness of investments.

Evaluation of the effectiveness of investment projects is one of the most important stages in the process of managing real investments. The correctness of the final decision depends on how well such an assessment is made.