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The Concept of Investment

The Concept of Investment

Each of you is sure to have a definite idea of the term “investment”. If, however, you are compelled to define this term in a very general way as broadly as possible, the result of these definition efforts of different persons would differ considerably. At this point, you should first note “your” idea of the nature of the investment, only for yourself. In the course of the discussion, you can then check how close (or less close) you are to the nature of the investment.

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Investment Concept

In general, it can be stated that, while the economy is striving to base itself on clearly defined terms, this has not been achieved with regard to the concept of investment.

Basically, this is the process of gaining more money from existing capital (originally and even today, practically money capital). For all companies – other than banks – this means implementing the following process:

Money -> non-monetary assets -> more money

In other words, existing money-capital must be transferred to a state which is not a means of payment; this non-monetary object is used in time and provides the intended effect, either from the use or at the end of the period of use, of making more money from existing money.

In general, the concept of investment can be defined as the deliberate acceptance of a safe disadvantage in the present in favor of an uncertain future benefit.

Be sure to visualize this in a plastic way: in the present, you have secure financial resources that you could use for consumption. They renounce to the safe present advantage, convert this money into a nonmonetary asset in the expectation (or also hope), in the future from the money gained thereby a higher consumption to realize. If you have fully understood this, you have captured the central content of the investment concept.

In companies different types of investments are distinguishable; we will deal with two aspects: the classification of investments according to the type of non-monetary assets to be invested, and the effect of investments on operational performance.

Difference by type of non-monetary assets

  1. Investments in kind are directly involved in the operational performance process: machinery, equipment, real estate, etc. This is where disbursements and expenditures arise (what was the difference between the two terms?). Expenses and expenses are deemed to be capital investments in the form of depreciation.
  2. Financial investments consist of an accumulation of securities in the investment portfolio as well as a growth in the shareholdings in other companies. These investments are generally not necessary for the actual operation.
  3. Intangible investments are aimed at strengthening or securing the competitive situation of the enterprise by acquiring rights (patents, licenses, rights of use, purchase, and delivery) or other productive intangible factors such as investment in continuing education [2] Research and Development.

However, investment in continuing education is viewed as a consumption expenditure according to classical economic theory. However, given the fact that the notion of consumption is a capital contribution that does not contribute to the expansion of the needs satisfaction, education spending is a very investing character in the present

About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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