Capital expenditures are part of the capital investment, a necessary condition for the normal functioning of the company. They are also called investments in non-current assets.
Types of capital investments
Capital expenditures are long-term investments that can provide future returns. These are, for example, R&D costs. The following types of capital investments can be distinguished: construction of facilities, expansion of an enterprise through the introduction of new industries, reconstruction (reorganization without introducing new capacities) and technical re-equipment (introduction of new technology, modernization). Investments in reconstruction and technical re-equipment have a faster economic return. At the same time, a smaller amount of capital investments is required, and the work is carried out in a short time.
The organization can make capital investments not only in production, but also in human capital. These are, for example, the costs of improving the skills of workers and labor productivity. In this case, the costs can be offset by an increase in the organization's income in the future.
From the point of view of the technological structure, investments in active and passive elements of fixed capital are distinguished. The passive includes those who are not directly involved in production, but create the necessary conditions for it. These are, for example, investments in buildings and structures.
By designation, capital investments are divided into production (machine tools, equipment) and non-production (buildings).
According to the method of implementation, capital investments can be carried out in an economic way (on our own) or by contract (with the involvement of third-party companies).
From the point of view of investment sources, capital investments are made at the expense of their own funds (for deductions from profit, depreciation, at the expense of share premium, charitable contributions), funds and borrowed funds (loans, accounts payable). Also, budget subsidies and foreign investments can be among the sources of financing.
Capital investment efficiency
Before making capital investments, an assessment of their economic and technical efficiency should always be carried out. In particular, a feasibility study is carried out, including the development of production facilities and marketing research; forecasting the financial results of investments, as well as general economic analysis.
Based on the analysis results, conclusions are drawn regarding changes in various indicators of this activity. This, in particular, is an additional output of production per ruble of capital investment. It is calculated using the formula: (gross production with additional investment - production with initial investment) / (amount of capital investment).
Another analyzed indicator is a decrease in the cost per ruble of capital investments. It is calculated as the volume of production after capital investments * (unit cost of the original product - with the investments made) / (the amount of capital investments). Accordingly, the payback period can be calculated using the inverse formula: (amount of capital investment) / volume of production after capital investment * (unit cost of the original - with the investment made).
