INVESTMENT


        
By: SENATHON IPIA


Definition of Investment
Investment is an economic activity of spending money now to make (or to earn) money later.

An investment would be classified as one of these:

1. business investment

2. portfolio investment

3. investment in property

4. investment in human capital


1. Business Investment
Business investment is establishing and running (or managing) a business organization to make money.

The business organization could be:

i. sole proprietorship

ii. partnership business

iii. limited liability company business

iv. cooperative society business

v. public enterprise business.


The economic essence of business investment is to earn income called profit.

Owner(s) of a business organization is (are) therefore business investor(s).


2. Portfolio Investment
Portfolio investment is buying shares in a limited liability company and lending money for interest.

(a) A buyer of shares in a limited liability company is said to hold shares in the company, so he/she/it is a shareholder. 
Note: A business organization can hold shares in another business organization, that is why I used the pronoun " it "

Now a shareholder makes money from shares either by:
(i) receiving from the company an income called dividend on the shares, that is, if the shareholder keeps and does NOT resell the shares.
OR
(ii) if the shareholder decides to resell the shares, the shareholder gets money called income from the sale of shares.

(b) As for lending for interest, the money made is called interest.
A shareholder or a money lender or both is referred to as portfolio investor.


3. Investment in Property (or Property Investment)
Property investment is building or acquiring a fixed asset and using it to make money either by renting it out or reselling it.
Examples of property investment are:

(i) building or buying a house, and then renting it out to make money called rental income, or selling the house to make money called income from property sale

(ii) buying a vehicle, and then putting it out for vehicle hire service to make called rental income, or reselling the vehicle to make money called income from vehicle sale.


4. Investment in Human Capital (or Human Capital Investment)
This refers to spending money and other resources for the education and training of human beings for better productivity.


Note: Under investment, we'll focus on business investment, that is, business organizations, and also discuss portfolio investment. See the next posts.

THANK YOU
For more, send e-mail to: senaipia@gmail.com, or call: +234 (0) 7052802574


Senathon Ipia is a Chartered Accountant with the Institute of Chartered Accountants of Nigeria (ICAN).

 

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