Key Difference: Gross investment refers to the total expenditure on the purchase of fixed assets over a certain period of time, excluding depreciation. On the other hand, net investment includes depreciation and is calculated by subtracting depreciation from gross investment.

Investment refers to the amount invested in the acquisition financial assets. Investments are made in order to get a good target income within a certain period of time. Target income can be in any of the forms such as an increase in the value of assets or valuable papers. It may also refer to regular income derived from securities or assets. There are different types of investments such as autonomous, side, financial, real, planned, unplanned, gross and net.

Gross investment refers to the amount invested in the purchase or construction of new capital goods. Net investment are also related to gross investment. This is basically gross investment minus the depreciation of existing capital. This depreciation is related to some of the investments that need to be made to replace obsolete or depreciated assets such as plants and equipment.

Or we can say that, Net Investment = Gross Investment - Depreciation

If gross investment exceeds depreciation over any period of time, then this directly indicates that net investment is positive, which also means an increase in fixed capital.

Similarly, if gross investment is less than depreciation, then in that case net investment tends to be negative and the capital stock decreases.

To understand the difference, consider this example: a factory starts the year with 20 machines. He buys 5 cars. 10 cars are worn out. Now the gross investment refers to the purchase of new machines, which is 5, while at the end of the year the total number of working machines = 20 + 5-4 = 21. This results in an actual increase of 21-20 = 1 machine. which reflects net investment.

Thus, gross investment is the total amount spent on goods for the production of other goods and services, while net investment is the increase production stocks.

Comparison of net and gross investments:

	Net investment	Gross investment
Definition	It is calculated by subtracting capital depreciation from gross investment.	The total amount spent on the purchase of new assets
	Net Investment = Gross Investment - Depreciation	Gross investment = general purchase or construction of new capital goods
meaning	It helps to understand how much money is being spent on capital objects by taking into account losses such as maintenance, wear and tear, etc. Thus, it helps to expand operations and improve efficiency. By neglecting depreciation, you can run into special situations associated with obsolete or worn devices.	Helps in determining general expenses for the means of production
Includes	Changes in equity	All new investments Procurement of machinery, equipment and tools by enterprises Whole structure Inventory changes
Indicator	Generally considered a better indicator than gross investment	Not considered better than net investment

Essence of gross investment

There are several approaches to the concept of gross investment:

• The first approach is expressed at the macroeconomic level. Gross investment is the total amount of investment in the country's economy in the aggregate.
• The second approach considers gross investments as investments that are aimed at supporting and increasing the volume of fixed capital of the enterprise and reserves.
• The third approach implies under gross investment all the total investments of the investor that were made in the investment project.

Consider gross investment in terms of investments in fixed assets and stocks.

Remark 1

Under this approach, gross investment includes depreciation, as well as net investment (that is, minus depreciation). In this case, depreciation acts as an investment resource, since cash deductible for depreciation in the present are "temporarily free" cash. Net investments assume investments in the improvement of production activities, new investment projects. Often in this aspect, gross investment is called capital investment.

Further, gross investment is considered in the aspect of the second approach. Since the consideration of gross investment as a source of growth for the fixed capital of an enterprise is the most important in the aspect of microeconomics.

Consider the composition of gross investment.

Composition of gross investment

Since the main object of the type of investment under consideration is fixed assets, the following possible composition of gross investments is distinguished:

• deductions for the restoration of capital involved in production activities at the enterprise, using depreciation mechanisms, deductions for the restoration of technical and obsolescence of equipment, fixed assets, which are on the balance sheet of the enterprise;
• replacement production capacity enterprises for more modern equipment and fixed assets;
• modernization, renewal of production;
• investments aimed at the construction of buildings, structures.

Also, the composition may include not only investments in fixed assets, but also in intangible assets. For example, in the acquisition of patents, know-how, trademarks and brands, licenses for certain activities, software and software products.

So, in general, gross investments can be divided into two groups:

• investments, the purpose of which is the restoration and renewal of production, fixed assets (depreciation);
• the second group - investments that are aimed at increasing the volume of the enterprise's capital, increasing assets (net investments).

main sources

Among the sources of gross investment, investors' funds, loans banking institutions, state funds (state support), funds from stock trading, depreciation funds.

Formula for calculation

Consider the calculation of gross investment in the enterprise. The first considered group of investments is calculated as depreciation corresponding to the fixed asset and deductions for depreciation.

So, the formula for gross investment is presented below.

Gross investment in the period under review = Depreciation in the period under review + Net investment in the period under review

This formula is also used in macroeconomics to calculate the total gross investment in the country. Also, the total gross investment in the country is used to calculate the Gross Domestic Product by spending.

Investment can be defined as one of the types of economic activity of individuals and legal entities. The activity involves the investment of own material assets(capital, securities) into any object or phenomenon that has a monetary value. Funds are invested with the expectation that the value of the purchased asset will grow over the years, which will bring passive profit to the investor.

Depending on the object of investment, investments are usually classified into:

• real (actual acquisition of material values);
• financial (purchase of securities);
• speculative (purchase of currency, commodity raw materials or securities with the expectation of a sharp increase in the asset and subsequent sale at a new market value).

Investment activities are also classified depending on the purpose of the deposits:

• direct (acquisition of company assets in order to participate in its development);
• portfolio (buying shares of several large companies in order to obtain a stable passive income);
• real (investment in production or industrial activities);
• non-financial (informational contributions to the development of the company, which can be expressed in the form of scientific developments or discoveries);
• intellectual (financing the creation of products of intellectual activity on individual terms).

According to accounting, investments are usually divided into gross and net.

Gross and net investments: concepts and meanings

Net investment is usually called the actual increase in real capital of the enterprise from third-party sources. The complexity of calculating such investments, in comparison with the calculation of gross investments, is primarily due to the depreciation of capital (loss of the market value of tangible assets under the influence of inflation and other macroeconomic and geopolitical factors).

The Role of Net Investment

To ensure the stable development of almost any enterprise, constant investments are needed in the modernization of production, an increase in trade turnover, and so on. To understand the meaning of net investment, consider the following example: the founders of the enterprise set the goal of modernizing the production base. For this they need funds. The Board of Directors decides on the issue of shares, which go to trading floors for sale. Buyers of such assets can expect to receive dividends, the amount of which will depend on the demand for the company's products and the volume of sales of finished goods. The founders of the proceeds in this way can use the funds for the needs of the organization. Such proceeds are net investment from individuals only after the completion of the auction. Individual investors can act as private investors, as well as legal entities (commercial banks And investment companies). As a result of such manipulations, the founders will not have to specifically find investors.

Also, net investments are personal material contributions of the founders to the development of the company.

Gross investment

Under gross investment, it is customary to understand the investment of a private person in the development commercial organization. In essence, they refer to real investments aimed at increasing fixed capital or working capital. Financial investments are considered gross if individual the purchase of the company's securities, which were issued in order to attract third-party capital, was carried out.

Depending on the size authorized capital enterprises, gross investments are classified into 2 groups:

• depreciation (restoration of the initial volume of trade turnover);
• investment (capital increase).

Gross investments are gross only if they led to an increase in start-up investments. Otherwise, it is a pure investment.

Calculation formula

The volume of gross investment (B) can be calculated using the formula. To do this, you need to display the amount of depreciation (A) and net contributions (H): B \u003d A + H. This formula is widely used in macroeconomics. Good example- determination of the state's GDP in terms of expenditures. At the same time, the indicator of gross investment is one of the components, along with the volume of production costs and export costs.

The formula for net investment determines their volume: P=V-A.

For the development of the economy of the state or an individual enterprise, the predominance of gross investments over the amount of depreciation is important. With identical values, stagnation occurs, since the restoration of capital at the expense of only internal resources is practically impossible.

Composition of gross investments

As a rule, the composition of gross investments depends on the investment object. They may be:

• human resources;
• intangible assets;
• funds aimed at ensuring trade turnover;
• fixed capital of the enterprise.

Gross investments are aimed at the development of fixed capital. Therefore, they are used to implement the following tasks:

• amortization of depreciation of capital (physical and moral);
• modernization of production and introduction of innovative technologies;
• construction and more.

The structure of gross investments also includes investments in intangible assets:

• brands and trademarks;
• additional software;
• licensing of certain types of activities;
• acquisition of rights to land, deposits and buildings for both residential and commercial purposes;
• investments in the creation of intellectual property products (innovations, scientific developments, etc.).

Practice shows that it is expedient and cost-effective to use gross investments for the development of human resources. This allows you to achieve greater performance:

the best quality of productivity of a skilled workforce and the organization of comfortable working conditions contribute to less fatigue of employees and quick recovery.

Source of net investment

Sources of net investment are usually divided into external and internal. In turn, the internal ones include:

• profit;
• planned deductions for depreciation;
• profit received as a result of the sale of unnecessary property of the enterprise.

External sources of net investment include:

• bank loans;
• investments from private investors;
• profit received as a result of the issue and sale of securities;
• attracting capital from foreign investors.

Depending on the area of ​​application, private investment gives a different economic effect. They are usually divided into real and monetary. The former are aimed at developing production and increasing the number of jobs, while the latter are aimed at manipulating securities.

Usage efficiency

The effectiveness of the use of investments is determined depending on their structure. excessive financial investments lead to rapid inflation. If additional funds not enough, it can lead to deflation. These extremes need to be managed through an effective taxation strategy, credit policy, expenses and other material and budgetary measures.

Investments are the first stage in the formation of a commercial organization. Thanks to investments, a material base is created for the further development of the enterprise. At the private business level, net and gross investments provide an increase in turnover and productivity in general, which in turn leads to an increase in the profit of the enterprise. Also, attracting third-party investment allows you to increase the reserve and fixed assets.

The indicator of net and gross investments at the state level allows us to draw a conclusion about the demand for goods and services produced in the country, as well as the level of GDP, to determine the attractiveness for attracting foreign investment and assess the level economic development the state as a whole. The lack of gross investment will lead to the lack of development of education, high technologies, scientific research and health systems.

3. Gross and net investment

Gross investments are used to maintain and increase fixed capital (fixed assets) and reserves. They are made up of depreciation, which is the investment resources necessary to compensate for the depreciation of fixed assets, their repair, restoration to the previous level that preceded production use, and from net investment, i.e. capital investment in order to increase fixed assets for the construction of buildings and structures , production and installation of new, additional equipment, renovation and improvement of existing production facilities.

At the micro level, investment plays a very important role. They are necessary to ensure the normal functioning of the enterprise, stable financial condition and increase the profit of the business entity.

A significant part of the investments is directed to the socio-cultural sphere, to the branches of science, culture, education, healthcare, physical culture and sports, informatics, to environmental protection, for the construction of new facilities in these industries, the improvement of the equipment and technologies used in them, and the implementation of innovations. There is an investment in people and human capital. This is an investment primarily in education and health care, in the creation of funds that ensure the development and spiritual improvement of the individual, strengthening people's health, and prolonging life.

The effectiveness of the use of investments largely depends on their structure.

The structure of investments is understood as their composition by types, by direction of use, by sources of financing, etc.

Profitability is the most important structure-forming criterion that determines the priority of investments.

Non-state sources of investment are aimed at profitable industries with a fast capital turnover. At the same time, sectors of the economy with low profitability of invested funds remain not fully invested.

Overinvestment leads to inflation, while underinvestment leads to deflation.

These extremes economic policy regulated by an effective strategy in the field of taxes, public spending, monetary and fiscal activities carried out by the government.

In the system of reproduction, regardless of its social form, investments play the most important role in the renewal and increase of productive resources, and, consequently, in ensuring certain rates of economic growth.

In the representation of social reproduction as a system of production, exchange and consumption, investments relate to the first stage of production and constitute the material basis for its development.

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GROSS INVESTMENT

GROSS INVESTMENT

(gross investment) The cost of creating new fixed capital before deducting any accrued depreciation of fixed capital (capital consumption). Gross investment consists of the sum of gross fixed capital investment and net investment in inventories and work in progress. Gross investment should be distinguished from net investment, which means a change in the value of fixed capital after the accrual of its depreciation. The valuation of gross investment is in principle based on the valuation of traceable market transactions (transactions); on the contrary, depreciation is calculated on the basis of calculations of the rate (speed) with which the fixed capital wears out or becomes obsolete. These calculations are not based on the value of market transactions; consequently, they and the estimates of the value of net investment derived from them are much less reliable than data on gross investment.

Economy. Dictionary. - M.: "INFRA-M", Publishing house "Ves Mir". J. Black. General editorial staff: Doctor of Economics Osadchaya I.M.. 2000 .

Economic dictionary. 2000 .

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