Fundamentals of investment activity
Investment activity is caused by objective circumstances, despite the fact that in most cases its initiators, in the market conditions, are individuals and groups of persons.
First of all, the need for investment is determined by the ever-increasing (in a prosperous society) needs of people, whose satisfaction is the main purpose of the production sector.
In the second - the constant availability of free funds, accumulated in various financial institutions and requiring its application.
Thirdly, investment in creative activities brings results that simply require their application, i.e. additional investment to implement such developments.
Fourth - limited life cycle of any investment project.
Of course, in most cases these free funds are small, but for their accumulation there are special institutions - banks, which allows to use these funds in investment projects. The same applies to the funds of various enterprises and firms. In the case of free funds, they are necessarily sent to a project, as the frozen funds mean actually loss of possible profit.
In a developed society, a large part of the money earned by its members goes to the development of scientific activities. Science is one of the most profitable industries of human activity. Investments in scientific activities are in themselves investments.
For them there is a special term - "innovation" and they will consider much later. Now we will discuss the results of scientific activities, which represent in the form of new goods, technologies, means and methods of production, recommendations, etc. And the capital is unique in its novelty.
The use of this capital in most cases requires further substantial investment. After all, it is impossible to produce a new product or get new material in commercial quantities without the construction of new enterprises or at least technological lines.
Thus, the availability of investment in scientific activities requires even more or the same investment in their results.
It turns out as if a vicious circle:
the more spent at first, the more you need to spend further. In fact, this pattern occurs in almost all branches of human activity and it is interpreted as this: the more you want to earn, the more you have to spend.
The constant increase in costs entails the need to increase the rate of capital turnover and means a change in the structure of investment. To shorten the time frame for projects, extensive borrowing requires. The further, the more so, the wider the application becomes.
Most U.S. industrial giants started with such a oriented ratio of start-up capital of the founders: 80% - equity; 20% - borrowed funds.
During the period of rapid development of the Japanese economy, the ratio was already reversed: 20% - equity and 80% - borrowed funds. In addition, investments in intellectual property and scientific development in Japan have a different structure, they are much closer to the producers and, accordingly, much faster give returns.
Nothing on earth is eternal, much less real capital. And if the development of human needs and science causes moral aging of production funds, i.e. their non-compliance with modern requirements and, in principle, may not affect certain industries, physical aging of equipment is inevitable in any case. Therefore, any investment project goes through five stages of the life cycle.
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