Advances in Economics, Business and Management Research, volume 128

International Scientific Conference "Far East Con" (ISCFEC 2020)

Corporate Investments: Essence and Effectiveness of Capital

Use

A Brodunov1, O Ivanova1, K Bunevich1, E Gavrilova1, O Nazarenko1

1
Moscow, Moscow Witte University

E-mail: [email protected]

Abstract. This paper considers the essence and specific features of corporate financial
investment. It describes the pros and cons of financial investment. Insight is provided into the
peculiarities of such investment, its drawbacks, and how it specifically works.
Financial investment means deferring a fix amount of money that is expected to generate some
return over a certain period of time. Financial investment regulates corporate spending and its
structure. Before any company invests, it performs thorough analysis and chooses a focused
approach. What should be done is to research the investment plans available in the market,
consider the pros and cons of the investment plan, and analyze the risk factors before the plan
is finished. Financial investment must be adjusted to maximize return.
Financial savings and investment both have their peculiar features that are important to
understand. Savings help preserve and protect money while accruing complex interest, whereas
investment helps money build up when the stock market is volatile. Both savings and
investment are used as short- and long-term strategies for financial gain. Research Methods:
observation, systemic approach, statistical analysis, induction and deduction, comparative
analysis, etc.

1. Introduction
Fina investment secures the future. Carefully done investment gives a company a safe and secure
future. Before choosing a plan, corporate employees calculate the risk factors, the tenure, the
conditions, etc. Financial planning specialists take care of corporate investment, which is extremely
important. They do understand what the company needs, what revenue it has available, how stable it
is, etc. Corporate managers carefully study the documentation before allocating any funds for
investment.

2. Expected outcomes
Financial investment is done outside the score of purchasing securities, corporate rights, or other
monetary instruments. Such investment pursues different goals. It is mainly done to convert savings
into highly liquid property documents, to generate possible future income, or to take over the
issuer. Financial investment is a form of utilizing the company’s free funds. There are some peculiar
aspects to it:
- financial investment can be external, whether domestic or international;
- financial investment helps the company pursue its strategic development goals while preserving
the equity;
- financial investment takes far less time to take action than any real project;

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- it is mainly pursued by well-developed companies after the corporate needs are covered;
- financial investment is an economic activity in its own right;
- companies can invest in speculative instruments without risk or act as serious conservative
investors;
- financial investment requires decision-making when doing financial transactions.
Financial investment is not the same as economic investment. While economic investment implies
considerable increase in fixed capital, financial investment is about redistributing resources among
assets that will yield dividend over time.
In general, a more economically developed companies is likelier to have financial investment in
addition to economic investment. Financial investment is usually a sign of the company having
enough capital to keep its status and profitability, etc. Without financial stability and reserves to
operate, a company is not likely to invest a lot. Some additional funds are allocated for economic
investment to boost profits. Only when the company has a stable system to sustain growing economic
investment, it can focus on financial assets.
Companies often invest in real estate as they grow. In particular, successful retail chains often
generate most of their income from their real-estate stakes. This is one of the fastest ways to boost
profits compared to other kinds of investment.
A company always need economic investment.
It is important to have both economic and financial investment. While these two types of
investment overlap, they do not coincide; in combination, they can stabilize the company in the long
term. Development mostly begins with economic investment, then switches to financial investment.
Financial investment has a number of peculiarities, see Table 1.
Table 1. Features of financial investment.
# Feature
1 Financial investment does not depend on what the company’s business is
2 Companies use financial investment to generate income from their cash, which is
important when the temporarily disposable capital cannot be effectively utilized to expand
the business; another function is protection against inflation
3 Financial investment enables the company to pursue the investment policy of its choice,
whether ultra conservative or ultra aggressive; businesses have a choice of investment
instruments available in the market in a wide range of yield-liquidity or yield-risk ratio,
from risk-free instruments to high-risk speculative instruments
4 The whole financial investment management process enables easier and less labor-
intensive controls, which is different from the real investment, where investment projects
are costly to prepare.
5 Financial markets are more volatile than commodity markets, which is why the financial
investment-related decision are often made on the go
Developed by the authors on the basis of
https://booksforstudy.com/13761025/investuvannya/napryamki_investuvannya.htm (as
ofhttps://booksforstudy.com/13761025/investuvannya/napryamki_investuvannya.htm 31.08.2019) [15]

A company’s financial investment may take form of purchasing stock, bonds, and other
instruments [8], [9]. This can be creation or purchase of rented real estate, property insurance, cargo
and carrier insurance, employee insurance, and liability insurance. Any of these financial assets can be
stabilized in the future. Income diversification and distribution of capital between multiple assets
provides far better protection in case of bankruptcy [1], [3].
Economic and financial investment helps the company further its business. It is imperative to have
both types, as it can protect the business from many pitfalls. As soon as an opportunity arises, the
company should seek more financial investment to boost its capital and stabilize its own foundations.

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There is a clear correlation between economic and financial investment. If financial assets generate
profit, the profit can be reinvested for economic reasons. Since the company’s stock will pay off in the
future, these funds can be used to finance new equipment or upgrades. Similarly, economic
investment, such as equipment upgrades, can be used to generate more profits, with surplus being
turned into financial investment for extra profit. Purely economic investment limits the company’s
development [13], [14].
Consider the pros and cons of economic and financial investment.
Let a company investment in its operations by purchasing capital or assets such as stocks or bonds;
this infers a risk. The probability of gaining additional profits or assets as a result of investment is
higher than the probability of breaking even or losing money [4], [5], [6].

3. Cons of financial investment

1. High costs and commissions for sale. Tariffs decrease the total return.
2. Management abuse In case of misuse ofauthority, sales and turnover may drop.
3. Tax inefficiency
Investors have no choice when it comes to paying the capital gains in mutual funds. Due to yearly
turnover, buyout, profits and losses in securities, investors mostly gain profit from the distribution
funds, which are uncontrollable tax events.
4. Poor transaction execution. Investors seeking faster execution due to shorter investment
horizons, day trading, or specific market timing, do not benefit from mutual funds.
5. Investment is volatile.
It is prone to multiple risks, as the market is volatile. Stocks fluctuate many times a day. These
fluctuations are often unpredictable, and investors might face serious repercussions of such
uncertainty.
6. Brokerage commissions.
Every time an investor buys or sells their stock, brokers levy a commission.
7. Investment is time-consuming as the procedures are excessively bureaucratic [9], [10], [11],
[12].
Financial investment is currently the most common investment means, as it favors the speculators
by enabling:
1.Advanced portfolio management
Administrative costs are incurred as the main item on the list of expenditures, which is what attract
portfolio management experts that help buy or offer stock, bonds, etc. These are usually levied as the
investment portfolio management fee.
2.Dividend reinvestment
As profits and other premiums are announced for reserving, they can be used to purchase extra
offers in a regular store, which helps investment develop.
3.Lower risk (safety)
Portfolio risks are reduced by diversification.
4.Convenience and fair pricing
Common assets are normal and easy to purchase. They usually have less and less investment (some
2,500 USD) and are only traded once a day at net asset value (NAV). This helps avoid changes in
value over the day as well as evade arbitration procedures that informal investors master. Chances are
the investment will pay off shortly.
5.Minority property
The market residuals can be enlarged by placing funds in various businesses [15, [16], [17].

4. Conclusions
Thus, economic and financial investment offers enormous benefit, as its helps utilize the company’s
growth potential if this tool used cautiously, thoroughly, and timely. Carefully balanced, each financial
investment will be crucial to the outcome. Thus, financial investment is intended to generate return in

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the form of the invested company’s cash flow. Unlike strategic investors, the investor here relies more
on the current management. ‘Investment’ is an umbrella term that signifies each and any mechanism
that generates profit. In financial sense, it covers the purchase of bonds, stocks, or real estate. Besides,
a newly constructed building or any other facility used for manufacturing can be considered an
investment. Manufacture of goods that will further be used to make other products is also an
investment. Investing in financial markets has both pros and cons; however, one has to risk to secure
their future.

5. Acknowledgments
We’d like to thank our parents and colleagues that supported us while we were doing this research.

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