A startup, a firm, or an organization are all looking for sustainability in the market. Sustenance is not just maintaining rapport by maintaining a financially balanced company. For a firm to be economically balanced, a company has to plan some investment decisions to prevent it from any financial crisis in the future for the company as well for the people working. Let’s learn the details about an investment decision and all terms related to it.
What is an Investment Decision
In financial management, the term investment decision is known as budgeting the capital. The word “capital” refers to the real-time asset such as a physical object, e.g., machines, plant, building, or any kind of asset which is useful for the firm. The investment decision is that decision, which increases the future revenue by investing in the current time.
Categories of an Investment Decision
1. Inventory Investment
Investing money on the goods which can be used in the future during a crisis for the proper functioning of the firm or business. This type of investment in the goods is known as inventory investment.
2. Strategic Investment Expenditure
Such investments are also done to power up the firm or strengthen the firm in the market.
3. Modernization Investment
Modernization investments done in the machinery for advancement in the technology is also known as a capital deepening process.
4. Expansion Investment on a New Business
When an organization decides to spread the roots of the firm in a new business or a new idea, the cost required to set it up such investments is included in this category.
5. Replacement Investment
When the organization replaces the old tools or machinery or assets with the new one, such investments are counted in replacement investment.
6. Expansion Investment
When the organization decides to increase the productivity of existing products, it needs investment for growing the business and is known as capital widening.
Need for Investment Decision
The CEO of the organization or the founder of the business has long-sighted dreams for sustaining in the market, keeping pace with evolving technology, and also surviving the worst are all key aspects of the firm to fulfill. The following are the reasons a firm needs to consider while making an investment decision:
- To meet the requirements of the market company or firm should also expand its own business by increasing productivity. Here are the best hacks to increase your productivity.
- To keep pace with technology and to minimize the cost of products and laborers, so the company has to replace the old assets or machinery with new items.
- Not every time, the company can buy an asset. They either have to hire or rent or lease an asset that comes under investment decisions.
Factors Affecting
For optimizing investment decisions making, Prof. Ezra Solomon, suggested the following three things:
- Proper estimation of income and expenditure of the organization should be done from a proposed project.
- Keep a check on capital and analyze the financial balance.
- Set rules to select the project which optimizes the investment by focusing on logics and arithmetics.
Conclusion
By learning the above knowledge, one can understand the investment decision and its importance in the Economic industry. While setting up or expanding one’s business and for decision making above factors should be taken into consideration.
