Investments

Whole investments in a company IG = IN + IR Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Investments can be defined as a sacrifice of a certain present value in order to achieve future higher but uncertain value. In the frame of a building company it concerns mainly about a purchase of a long term tangible, intangible and financial property. Whole investments in a company IG = IN + IR IN ... Net Investments: expansion of a production or creation of a new business IR ... Restoring investments: the main objective is to restore mugged and consumed parts of property IG ... Gross investments: whole investments of a company Modernization investments Rationalization investments Modernizační investice – obnova opotřebovaného zařízení a získání nového, které rozšíří kapacitu podniku. Racionalizační investice – obnova opotřebovaného zařízení při zachování kapacity, ale docílení nižších výrobních nákladů. 30.12.2018 Investments

Investments according to the subject of investing Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Investments according to the subject of investing Real investments Direct business in the production or services Purchase of real estate (lands, buildings), art collections, art subjects or precious metals (gold, silver, platinum, palladium) Financial investments Monetary deposits Obligations, Savings notes Shares (stocks) Insurance Financial participation on business of partners (sleeping partnership) Derived commercial papers (options, term contracts) Intangible investments Investments into education, science, research and development Advertisement or social services Finanční investice mají charakter majetkové transakce mezi lidmi. Představují kontrakty napsané na papíře, na jehož základě může investor uplatňovat určitá majetková práva. Většina těchto listin patří mezi tzv. cenné papíry. Finanční investice mají tedy především formu investování do cenných papírů. Investice nehmotné-zvláštním znakem této skupiny je to, že nelze k potřebným peněžním výdajům přiřadit jimi docílené peněžní příjmy. 30.12.2018 Investments

Investment space – yield (returns, revenues), degree of liquidity and risk running in the time All incomes coming from an investment from the moment of investing of first sum of money till the moment of the last income from an investment (sale or liquidation of an investment) Degree of liquidity Possibility to change our investment back to the ready money Risk Expresses possible deviation of real revenues, costs and time from the planned values 30.12.2018 Investments

Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Degrees of liquidity Na vrcholu leží investice vysoce likvidní, směrem dolů se likvidita snižuje. 30.12.2018 Investments

Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Degrees of risk Na základě dlouhodobého sledování kapitálových trhů byla vytvořena bezpečnostní pyramida, v základně leží investice nejbezpečnější, směrem k vrcholu se riziko investic zvyšuje. 30.12.2018 Investments

Planning and efficiency of investments Planning of investments Assurance of sale possibilities of a company Plan of the production creation Analysis of needs and availability of production factors ? Needs of expansion of existing capacities? Investment 30.12.2018 Investments

Analysis of economic efficiency of investments Whole investment costs – needed capital Yield (returns, revenues) of a project Operating (production) costs of a project Assignment of economic and financial efficiency indexes 30.12.2018 Investments

Whole investment costs – needed capital Purchase of long-term property Pieces of land, buildings, machines and machinery, patents, intangible industrial rights,… Purchase of working capital Stocks and supplies – raw materials, materials, subsidiary materials, … 30.12.2018 Investments

Yield (revenues) of a project R = Q . c where Q ... amount of products c ... unit price of the product Revenues: Revenues for sold products Revenues for supplied services Financial revenues 30.12.2018 Investments

Operating (production) costs of a project Cp = M + W + Dep + Other Classification of costs according to the consumption of the input (production) factors: material wages depreciation other costs And next financial 30.12.2018 Investments

Profit / lost profit = revenues – production costs – financial costs after tax profit = profit – income tax 30.12.2018 Investments

Investment efficiency - static methods Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Investment efficiency - static methods Profitability Profitability = profit x 100/capital [%] Pay-off period represents number of years for that the project is possible to generate revenues for covering of investment costs. Převzato ze skript – Marková … 30.12.2018 Investments

Example of the pay-off period assignment Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Example of the pay-off period assignment Example: Company AB would like to purchase machinery with the investment costs 4 mil. CZK. The lifetime of the machinery is 8 years. Expected values of revenues in particular years are in the table (in thousands crowns). Calculate pay-off period PP = 4 + (4000-3950)/1130 = 4.05 Year Annual CF CF cumulated 1 850 2 950 1800 3 1050 2850 4 1100 3950 5 1130 5080 6 1242 6322 Výnosy – obecně – zisk, CF, apod. 30.12.2018 Investments

Investment efficiency - dynamic methods NPV – Net Present Value IRR – Internal Rate of Return 30.12.2018 Investments

Ústav stavební ekonomiky a řízení, Fakulta stavební, Vysoké učení technické v Brně Net present value (NPV) describes arising of company’s property owing to realization of a project respecting the time value of money Kde: PV … Present value IN … Investment costs r … Discount rate n … Lifetime of a project (length of the judged period in years) NPV > 0 possible to invest, good project NPV = 0 possible to invest, good project NPV < 0 not to invest, profitability is lower then required Diskontní sazba – požadovaná rentabilita investice, rovná jiné investiční příležitosti nebo stávající rentabilitě podniku. 30.12.2018 Investments

Example of the NPV assignment Investor speculates about the purchase of a building for 2 mil. crowns with requirement of 15% appreciation of invested money. Expected future returns (incomes) is represented by rent in the amount of 400 thousands crowns annually. At the end of the fourth year we suppose the sale of the property for 2.25 mil. crowns NPV = PV - IN = 2428 - 2000 = 428 tis.Kč Value of NPV of the project is positive, requirement for the 15% appreciation was filled. 30.12.2018 Investments

Internal rate of return – IRR expresses average percentage annual gain of a project for the whole judged period (lifetime of the project) Way of the IRR assignment Estimate of IRR of the project Calculation of NPV for this IRR Comparison with decision making criteria: NPV = 0 ... Estimate is perfect NPV > 0 ... Estimate is low NPV < 0 ... Estimate is high Process will be repeated until it will be achieved one positive and one negative value of NPV Using of the formula for the IRR calculation where r1...estimated IRR for positive NPV r2...estimated IRR for negative NPV 30.12.2018 Investments