In economics, an investment is an immediate expense intended to increase, in the long term, the wealth of the person who commits it. In a company, an investment is used to increase productivity (invest in additional machines or more efficient machines), to save time (invest in task automation software)… Before incurring this type of expense , companies anticipate the return on investment using the ROI (Return Of Invest) ratio: ROI = [(investment gain – investment cost) / investment cost] x 100. In accounting, the investment is defined by a depreciable expense which increases the assets of the company (asset of the balance sheet). The General Accounting Plan classifies three types of investments: tangible investment, intangible investment and financial investment.
The definition of investment in economics
In economics, an investment is an expense intended to increase the wealth of the person who makes it.
An investment is an immediate expenditure whose objective is to obtain a quantifiable positive effect in the long term. A company invests:
to increase productivity (invest in additional machine tools, etc.)
to win new customers or take care of your brand image (invest in a communication campaign, etc.)
to save time (invest in task automation software, etc.)
to ultimately lower costs, i.e. increase profits (invest in a tool for monitoring energy consumption, for example to find where and how to save money, etc.)
Investment may also be necessary to maintain turnover (renewal of obsolete equipment) or to modernize equipment: newer and more efficient or more ecological, etc.
Investment: the accounting definition
From an accounting point of view, investment represents the acquisition or creation of a durable asset intended to remain in the same form for at least one year. The value of the property must be at least equal to 500 euros. In accounting, investment:
increases the value of the company’s assets (asset of the balance sheet)
is subject to amortization, the duration and rate of which depend on its nature (different types of investment)
What are the 3 types of investments?
The General Accounting Plan (PCG) classifies investments according to their nature. There are 3 which are:
Intangible investments: purchases that increase the value of the company’s assets, but which are not tangible (unlike tangible investments), such as patents , licenses, goodwill , etc.
Financial investments: purchases of stocks, bonds, etc. which increase the financial wealth of the company
Note that the company’s balance sheet shows the investments it has made for their depreciated amount on the date of the balance sheet, called “net present value”.
What is the role of investment?
Investment is a financial means to increase its capital through a profitable investment. When it is high, we speak of economic growth. Investment plays an important role in technology, business competitiveness, employment and above all in the economic growth of individuals, companies and countries. A company can promote financing allowing investment by having lower compulsory levies, lesser charges and wages allowing it to be favored by triggering precisely in fine, higher wages and greater expenses for the sustainability of these companies. Investments are measured in volume and in France by GFCF. Thus, investment is synonymous with growth and efficiency in work. It improves companies’ production techniques, but depends on their profitability.
How to invest?
There are many ways to invest. Thus, it is possible to invest money on the stock market, in cryptocurrencies or even in real estate assets. The most strategic ways to invest money are:
Investing in stocks while having a diversified portfolio
Investing in bonds which is less risky than investing in stocks
Which investment is the most profitable?
The most profitable investments do not necessarily exist, because they vary very quickly. Here are some examples below that are currently experiencing fairly decent profitability.
Currently, yield SCPIs are good investments for people with cash and wishing to receive regular income. SCPIs or Sociétés Civils de Placement Immobilier make it possible to invest in offices, warehouses and shops, for example. The company is in charge of the rental management and the housing stock is rented out to professionals. The net return has been above 4% for several years. This investment is profitable on condition that the shares are kept for at least ten years and that the sale takes place afterwards. An investor wishing to invest money in an SCPI has every interest in choosing a product in the city centers which are the most in demand.
Real estate crowdfunding is an investment to benefit from a quick return (less than three years). It is riskier than SCPIs, but yields 8% to 10%.
investing in gold and precious metals is always attractive, as they have always been risk-free safe havens.