Investments Flashcards
What is an Investment?
Money which is put into a business to make improvements in order to make the business more profitable.
Why may a business invest in new machinery?
May make processes more efficient, or may enable a business to make new products.
Why may a business invest in new buildings?
Will enable a business to expand by increasing the number of employees it can have, the amount of machinery it can keep or the amount of stock it can store.
Why may a business invest in new vehicles?
Businesses that rely on vehicles can expand by buying more vehicles or by getting larger vehicles that can transport more products.
What do businesses calculate to make sure that their investments are worthwhile.
Return on an investment.
What is the Return on an investment?
How much a business makes or loses as a proportion of the original investment that it puts in.
What is the average rate of return?
A calcualtion of the average return on an investment over its lifespan.
How can you calculate average rate of return?
ARR = average annual profit/inital investment.
X100.
(/ = divide)
A high ARR means…
The business sees a large increase in profit compared to the amount of money it invested
