Investment

Last updated: 16.03.2016

Investment is both acquirement of any asset or other item with the intention to obtain a future beneficial output (i.e. the process) AND the invested amount or resource that is sacrificed for the purpose of obtaining the benefits in the future.

 

The terms included in the investment definition can be very wide, for example:

  • the object of investment can be acquired both through buying or own production, construction or development
  • the asset or other item acquired may include capitalized investments (long-term assets), inventories, securities or just incurring costs
  • future beneficial output may include both quantitative or qualitative benefits:
    • quantitative:
      • additional income such as sales revenue, interest or dividends 
      • cost savings – e.g. in payroll costs or material production costs due to more efficient operation 
    • qualitative:
      • time savings – time can be devoted to more strategic issues
      • increase of market share
      • higher staff motivation or customer satisfaction
      • adoption of corporate social responsibility concept
      • easier and improved decision-making (e.g. due to more proficient economic software used)
      • more flexibility 
      • better reputation
  • the sacrificed resource can be money, time or effort

 

The investments are carried out in order to:

  • increase wealth
  • avoid the negative impact of inflation which reduces the purchasing power over time
  • avoid the effect of opportunity costs (when the money is not used for their best possible use)

 

General problems with investments:

  • sacrifice the resources now, whereas economic benefits will be obtained later
  • risk/uncertainty is involved
  • deciding between mutually exclusive investments


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