Today's article in saving money art is about one of the most important influences on the economies of countries, in addition to being the first and main source of wealth for individuals throughout history.
Economists agree that investment is one of the most important determinants of growth and financial prosperity. What exactly does it mean and what are its evaluations?
The General Definition of investment
We can note two definitions of investment.
The first definition: investment is a group of resources that includes machinery, various equipment, and new factories, except for what is related to working capital, and this definition is according to the narrow meaning.
The second definition: It is also known as the production process that enables the establishment to obtain its needs of commodities, raw materials and necessary production services, whether for its usual activity or to carry out the expansion process and this is according to the broad meaning of investment.
With these two definitions, we can define investment in general as:
“the process by which a sacrifice is made, to give up a present benefit that can be achieved in place of consumption and gratification of desires, with the aim of obtaining a future benefit through greater future consumption.”
What exactly do we mean by investment
Defining the investment concept:
There have been many concepts about investment, including the accounting concept, the economic concept, the financial concept...etc.
First, the accounting concept:
The accounting scheme for investment is defined as follows:
Second, the economic concept:
According to the economic concept of investment, it is the money that is allocated for the production of commodities that enter into the process of producing other commodities, which are known as intermediate commodities.
Third, The legal concept of investment
From the legal point of view, there are many definitions, perhaps the most prominent of which we find:
Investment is the process of transferring capital from abroad to the country in which to invest in order to achieve a financial return with an increase in production and development of the country hosting that money.
Investment ratings
We find that there are two types of classification.
I- According to the job
1. Productive Investments:
These are investments that directly contribute to increasing production, as they allow an increase in job opportunities, including:
- production capacity investments.
- Renewal of investments.
2. Non-Producing Investments:
It is generally linked to productive investment in the sense that it contributes to it through the process of training workers and purchasing modern equipment and machinery, which leads to an increase in quality and production.
3- Productive investments:
It works to improve and develop the social conditions of citizens, which cannot be measured, and the state is responsible for this type of investment.
II-according to their nature
They are three types:
1. Financial investments:
These investments are represented in the financial markets, in general, from bonds and shares, so that the possession of these financial assets results in fixed revenues in relation to bonds or variable ones according to the stock market, such as stocks.
2. Commercial Industrial Investments:
It is represented in the possession of physical assets (machinery, land, buildings...) that is, all assets that lead to intensification of its financial share, whether industrial or commercial, that provides it with the necessary capabilities to carry out the activity expected of it.
3. Moral investments:
It includes all intangible investments such as fame, trademarks, patents, programs for merging or training workers and scientific research, that would play an effective role in the development of the enterprise and gaining fame in his rang. It also guarantees the marketing of its products as well as the ability to compete for market shares.
The most important investment determinants
It is a set of factors that affect investment and has been divided into:
1. Marginal Sufficiency of Capital
It is the expected return from investing a certain amount of money, and also means the marginal productivity of capital.
The relationship between the marginal productivity of capital and the invested funds is interrelated, meaning that the increase in the marginal productivity of capital leads to higher incomes, which encourages investment.
2 Scientific and technological progress
Scientific and technological progress has become one of the most important determinants of investment, and because of the competition prevailing in the market.
Which prompts the producer or investor to replace the old with new machines, and development in the field of research leads to the emergence of new energy materials instead of the old ones.
3. Degree of Risk
The degree of risk and investment is associated with an inverse relationship, unlike the marginal productivity of capital, and if the degree of risk becomes lower, the volume of investment increases.
Accordingly, the state must provide at least the minimum level of guarantees within the framework of laws encouraging investment.
4. Interest rate
It is defined as what is meant by the cost of invested capital, as the relationship between it and the volume of invested funds is inversely related. as with an increase in the interest rate, the volume of borrowing decreases, and this inevitably leads to a decrease in investment.
And the opposite is when the interest rate decreases, this leads to an increase in the volume of borrowing, and thus an increase in investment due to the decrease in the cost of borrowing.