Economic inversion

Investment: They represent money placements on which a company expects to obtain some future yield, either, by the realization of an interest, dividend or by selling at a higher value at its acquisition cost.

Summary

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• 1 Types of Economic Investments
• 2 Definitions
• 3 Differences between temporary investments and long-term investments
• 4 Objectives of investing in negotiable securities
• 5 Differences in the valuation rules for investment in bonds and investment in shares
• 6 The three variables of private investment
  • 1 Classification of investments
• 7 Source

Types of Economic Investments

1. Investments in Properties:
2. Investments in Short Term Deposits
3. Inversions in actions
4. Investments in Bonds

Each form of investment assets caters to different types of risk, return, liquidity, maturity and duration.

Definitions

Temporary investments: Temporary investments generally consist of short-term documents (certificates of deposit, bonds, treasury and negotiable documents), negotiable debt securities (government and company bonds) and negotiable capital securities (preferred and common shares), acquired with cash that is not immediately needed for operations. These investments can be held temporarily, instead of having cash, and can be quickly converted to cash when the financial needs of the moment make that conversion desirable.

Long-term investments: These are money placements in which a company or entity decides to keep them for a period greater than one year or the cycle of operations, counting from the date of presentation of the balance sheet.

Differences between temporary investments and long-term investments

Temporary Investments consist of short-term documents where the shares are more easily sold and converted into cash when needed. Permanent investment transactions must be handled through checking accounts. Which consist of company securities: bonds of various types, preferred shares and common shares.

Long-term investments are placements of money in terms of more than one year, where the shares acquired in exchange for securities that are not cash and are not readily available because they are not composed of cash but rather assets. The main goal is to increase your own profit, which you can achieve

1. directly through the receipt of dividends or interest on your investment or by an increase in the market value of your securities.
2. indirectly, creating and ensuring good operating relationships between companies and thus improving the return on your investment, which consist of short-term documents (certificates of deposit, treasury bonds and negotiable documents)

Investment objectives in negotiable securities

The term “marketable securities” basically refers to bonds of the United States government and to the bonds and stocks of large corporations. Indeed, investments in securities are often called “secondary money reserves.” If money is wanted for any operational purpose, these securities can quickly be converted into cash; in turn, investments in marketable securities are preferable to cash because they produce income or dividends.

Differences in the valuation rules for investment in bonds and investment in shares

Although the market price of a bond may fluctuate from day to day, you can be certain that when the maturity date arrives, the market price will be equal to the maturity value of the bond. Stocks, on the other hand, have no maturity values. When the market price of a stock falls, there is no certain way to say whether the decline will be temporary or permanent. For this reason, different valuation rules are applied to account for investments in negotiable debt securities (bonds) and in marketable equity securities (shares).

Treasury shares are not an asset. When buying treasury stock, the corporation is removing part of its shareholders’ equity by paying one or more shareholders. The purchase of treasury shares should be considered as a reduction of the shareholder’s equity and not as the acquisition of an asset. For this reason, the Treasury shares account must appear on the balance sheet as a deduction in the shareholders’ equity section .

The three variables of private investment

The amounts dedicated for agents’ investments depends on several factors. The three factors that most decisively condition these quantities are:

1. Expected return, positive or negative, is the compensation obtained by the investment, its profitability.
2. Accepted risk, the uncertainty about the real return that will be obtained at the end of the investment, which also includes the estimation of the ability to pay (if the investment will be able to pay the results to the investor ).
3. Time horizon, in the short, medium or long term; It is the period during which the investment will be maintained.

Investment classification

• According to the object of the investment.

1. Industrial equipment.
2. Raw Materials.
3. Transport equipment.
4. Complete companies or shareholding.

• For its role within a company.

1. For renovation, they are those intended to replace the used equipment, which due to physical, technical or obsolescence factors, has been deprecated.
2. Expansion, expansion investment is intended to increase the company’s potential market, by creating new products or attracting new geographic markets.
3. For improvement or modernization, they are intended to improve the situation of a company in the market, by reducing manufacturing costs or increasing the quality of the product .
4. Strategic, are aimed at reducing the risks derived from technological advancement and the behavior of the competition.