Expansion investment

Under an expansion investment is understood in business administration investments in fixed assets that the expansion of the operational capacity to serve.

General

Capital investments can be divided into foundation , expansion, replacement or rationalization investments according to their purpose . Of these investment purposes, the expansion investment in addition to the founding investment is the most risky because the other species the size of company do not change and are more or less inevitable. They also increase the amount of capital tied up. However, expansion and start-up investments have a capacity-increasing effect, which changes company revenues and total costs .

species

Expansion investments can operationally to-use land , land rights , buildings , technical equipment and machinery , equipment or office furniture and equipment relate. Their acquisition causes acquisition costs , which flow into the asset accounting as investment costs . Intangible investments (e.g. in concessions , licenses , patents , property rights , trademarks , acquired goodwill or research and development ) or financial investments ( e.g. equity investments ) are to be included in the broader term of expansion investments .

reasons

A company will only invest in the expansion of its facilities if growth has occurred or is expected ( market potential ) and therefore favorable sales and profit expectations are present, a degressive overall cost trend can be achieved, price increases for capital goods are to be expected or the interest rate for debt financing rises . In addition to expanding capacity for existing products, expansion investments can also be used to manufacture new products that cannot be manufactured with the existing production facilities.

The marginal efficiency of the capital employed forms the actual basis of investment decisions. A company will only invest when the marginal efficiency of capital exceeds the current market interest rate. If an investment generates a higher return than an alternative financial investment , it is invested and vice versa. With the expected service life of a machine to be purchased of 2 years, the following formula results:

${\displaystyle AK=Q_{1}+{\frac {Q_{2}}{1+R}}}$

Here are the acquisition costs of the investment Net income of the investment in the first year Net income of the investment in the second year Marginal performance of the capital (return on investment)
${\displaystyle AK}$
${\displaystyle Q_{1}}$
${\displaystyle Q_{2}}$
${\displaystyle R}$

For example, if a machine costs 1,000 euros with a two-year service life and the entrepreneur expects 500 euros in the first year and 540 euros in the second year net income from the machine, the result is a marginal performance of 8%. If the market interest rate is 7%, investments are made; if it is above 8%, the investment is not made. This marginal capacity was first introduced by John Maynard Keynes in February 1936 in his General Theory of Employment, Interest and Money .

Effects

Expansion investments increase the quantity of production factors while maintaining the same quality and can eliminate existing bottlenecks or avoid the expected ones. As a rule, they relate to property, plant and equipment (factor operating resources ), in the case of labor- intensive companies to personnel (factor work ). As a rule, an increase in operating resources is accompanied by an increase in personnel capacity, because machines have to be controlled or monitored by people. The additional fixed costs resulting from the expansion investment ( depreciation , fixed personnel costs ) must be covered by the contribution margins of the additionally produced quantity ( marginal revenues ). Another consequence of expansion investments, an increase in inventories of raw materials , consumables and supplies to be when the production volume increases.

In business administration, the expansion investment is the result of the Lohmann-Ruchti effect , as accumulated depreciation is reinvested in additional systems before old machines are withdrawn. A distinction is made between operational and strategic expansion investments in terms of the importance of expansion investments ; in the latter case, the gross investment exceeds 20% of the existing facilities.

In terms of the balance sheet , expansion investments lead to a balance sheet extension because they increase the assets and the equity and debt financing required for the investments simultaneously increase the liabilities .

Individual evidence

1. ↑ Günter Wöhe , Introduction to General Business Administration , 2013, p. 478
2. ↑ Wolfgang Hoffmeister, Investment calculation and utility value analysis , 2008, p. 20
3. ↑ Bernhard Felderer / Stefan Homburg : Macroeconomics and new macroeconomics , 1989, p. 110 f.
4. ^ John Maynard Keynes, General Theory of Employment, Interest, and Money , 1936, p. 115