long-term investment

Examples of long-term investment in the following topics:

• Types of Long-Lived Assets

  • There are two major types of long-term assets: tangible and non-tangible.
  • Long-term investments are often referred to simply as "investments. " Long-term investments are meant to be held for many years and are not intended to be disposed of in the near future.
  • They usually consist of three possible types of investments: investments in securities (such as bonds), common stock, or long-term notes.
  • Other types of investments include investments in special funds-- e.g. sinking funds or pension funds-- and different forms of insurance.
  • Fixed assets-- also referred to as property, plant, and equipment-- are purchased for continued and long-term use in generating profit for a business.

• Managing Marketable Securities

  • This is a broad term that encompasses investments a business may make within the securities market.
  • These types of investments are reported on a balance sheet as cash and cash equivalents due to their liquidity (as well as short term investments and, in some instances, long term investments), and can provide businesses with rapid access to capital.
  • Bonds function on fixed term contracts, generally long term, offering a fixed rate of return at an extremely low level of risk.
  • Another common instrument of investment for organizations investing in cash equivalents is common and preferred stock.
  • This image depicts a balance sheet from Proctor & Gamble, where the cash and cash equivalents, short term investments, and long term investments underline the various line items that may depict marketable securities.

• Types of Financial Decisions: Investment and Financing

  • To do so, the company needs to find a balance between its short-term and long-term goals.
  • In the very short-term, a company needs money to pay its bills, but keeping all of its cash means that it isn't investing in things that will help it grow in the future.
  • On the other end of the spectrum is a purely long-term view.
  • A company that invests all of its money will maximize its long-term growth prospects, but if it doesn't hold enough cash, it can't pay its bills and will go out of business soon.
  • Companies thus need to find the right mix between long-term and short-term investment.

• Risk Adjusting for the Time Horizon

  • When evaluating the riskiness of an investment, not only will investors or companies need to evaluate their preferences and risk tolerance, but it is also necessary to take into account the time horizon of the investment.
  • In terms of long term debt investments, such as long term corporate or government bonds, a longer time horizon gives rise to uncertainties in the potential operations of the debtor entity as well as unforeseen movements in the market as a whole.
  • Since stock investments have more time to overcome potential downturns in value, having a longer time horizon can justify more aggressive investing.
  • For an individual, diversifying investments in different time horizons is also important.
  • By staying in the market through different market cycles, individuals can reduce the risk of receiving a lower return than expected–especially with investments that fluctuate significantly over the short term.

• Reporting Investing Activities

  • An investing activity is anything that has to do with changes in non-current assets -- including property and equipment, and investment of cash into shares of stock, foreign currency, or government bonds -- and return on investment -- including dividends from investment in other entities and gains from sale of non-current assets.
  • These activities are represented in the investing income part of the income statement.
  • A dividend is often thought of as a payment to those who invested in the company by buying its stock.
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • The sale of a factory would be an example of a cash inflow from investment.

• Marketing Performance Metrics

  • There are two forms of the ROMI metric: short-term ROMI and long-term ROMI.
  • However, long-term ROMI is often criticized as a "silo-in-the-making".
  • Long-term ROMI creates a challenge for brands unfamiliar with using business analytics together with marketing analytics to determine resource allocation decisions.
  • Despite this challenge, long-term ROMI can be a sophisticated measure for prioritizing investments and allocating marketing and other resources within an established framework.
  • Marketing return on investment (ROI) is another term that refers to measuring company sales and profits.

• The Term Structure

  • In the case of bonds, time to maturity, or terms, vary from short-term - usually less than a year - to long-term - 10, 20, 30, 50 years, etc.
  • Shortcomings of the expectations theory is that it neglects the risks inherent in investing in bonds, namely interest rate risk and reinvestment rate risk.
  • The liquidity premiumtheory asserts that long-term interest rates not only reflect investors' assumptions about future interest rates but also include a premium for holding long-term bonds (investors prefer short-term bonds to long-term bonds).
  • Prospective investors decide in advance whether they need short-term or long-term instruments.
  • This explains the stylized fact that short-term yields are usually lower than long-term yields.

• Government Activity

  • It can invest, and operate through monetary and fiscal policy.
  • Investment: the government can stimulate economic growth by investing in the economy.
  • Examples of stimulants include investing in market production, infrastructure, education, and preventative health care.
  • This helps to control excess inflation and excess short-term growth, both of which can negatively affect long-run growth.
  • Government activity impacts long-run growth.

• Ranking Investment Proposals

  • NPV is a central tool in discounted cash flow (DCF) analysis and is a standard method for using the time value of money to appraise long-term projects.
  • Used for capital budgeting and widely used throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met.
  • Payback period intuitively measures how long something takes to "pay for itself. " All else being equal, shorter payback periods are preferable to longer payback periods.
  • When comparing investments, the higher the ARR, the more attractive the investment.
  • Therefore, NPV is the sum of all terms.

• Advantages of the NPV method

  • Calculating the NPV is a way investors determine how attractive a potential investment is.
  • In theory, an investor should undertake positive NPV investments, and never undertake negative NPV investments .
  • As long as the NPV of all options are taken at the same point in time, the investor can compare the magnitude of each option.
  • However, if none of the options has a positive NPV, the investor will not choose any of them; none of the investments will add value to the firm, so the firm is better off not investing.
  • For example, the discount rate can be adjusted to reflect things such as risk, opportunity cost, and changing yield curve premiums on long-term debt.