August 6, 2009
Investment or investing is a term is closely related meanings in business management, finance and economics, related to saving. An asset is usually purchased, or equal to a deposit is made in a bank, in hopes of getting a future return or interest from it. The term investment” is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.
Investment is spending on capital goods by firms and government, which will allow increased production of consumer goods and services in future time periods. Be careful not to confuse the economists￢ﾀﾙ definition of investment with another interpretation – that investment involves putting funds into financial assets such as stocks and shares.
The investment decision is one of the fundamental decisions of business management. Managers determine the assets that the business enterprise obtains. These assets may be physical, intangible, or financial. The manager must assess whether the net present value of the investment to the enterprise is positive. The net present value is calculated using the enterprise’s marginal cost of capital.
A business might invest with the goal of making profit. These are marketable securities or passive investment. It might also invest with the goal of controlling or influencing the operation of the second company, the invested. These are called inter corporate, long-term and strategic investments.
In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles and intangibles. In measures of national income and output, gross investment I is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX , where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted.
In finance, investment=cost of capital, like buying securities or other monetary or paper assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles.