What Is an Investment Center?

The investment center is one of the responsibility centers in responsibility accounting. A responsibility center responsible for costs, profits, capital budgets, and investment income. Usually includes several profit centers. In addition to decision-making power on costs and profits, it also has decision-making power on capital budgeting. Compared with the profit center, the performance evaluation of the investment center also includes investment income. ^[1]

Investment Center

Refers to those who are responsible for both costs and profits, as well as for investment results.

In addition to assessing profit indicators, the investment center mainly assesses indicators that can reflect the relationship between profit and investment, including

Main Tasks and Organizational Forms of Investment Center Finance

The goal of an enterprise group investment center is to pursue continuous capital appreciation. This goal determines that the investment center's financial work is different from the general product operation enterprise or project financial work. The financial department is a functional department specializing in financial operation and management within the investment center. Its main tasks are: responsible for accounting; overall planning and dispatching of funds; conducting financial benefit and risk analysis of the project; participating in responsibility control and performance evaluation. These tasks directly affect the establishment of financial institutions. Traditional financial management organizations must be transformed horizontally and vertically. In addition, the investment center financial institutions must be set up to meet the requirements of the organization and management system of the enterprise group. The financial management organization of the investment center is generally shown in the figure:

Inflow and outflow to strengthen the control of group and project funds

Fund management runs through the entire process of the investment center business. The finance department must focus on fund management to mobilize funds and control the use of funds. Fund control needs to start from both inflows and outflows. The more common method is to establish an internal settlement center for enterprises. Enterprises with conditions can also take other forms such as internal banks.

In practice, the role of the settlement center in the management of group funds has not been brought into full play. In order to give full play to the role of the settlement center in the management of group funds, the settlement center should be positioned as an enterprise group fund management center, which is important for promoting the centralization of group fund mobilization and use decisions and ensuring the operational autonomy of member companies or branches effect. Its main functions are as follows: centrally manage the cash income of each member or branch, implement two lines of revenue and expenditure; allocate funds required by each member or branch for business needs, monitor the use of monetary funds; formulate cash income and expenditure of enterprise groups Plan and manage regulations, and monitor the cash payment and use of relevant departments of the group headquarters and each subsidiary company in accordance with these plans and regulations 3 Unified external fundraising 3 Settle transactions between each subsidiary company and calculate the cash inflow of each subsidiary company in the settlement center Net amount and related interest costs or interest income.

Channels for Investment Center Finance Department to Participate in Investment Work

(1) Early stage of investment

1. Find out the resources and burdens of enterprise groups. The resources and burdens of enterprise groups are not only reflected in accounting statements. Due to the limitations of accounting assumptions and the need for financial accounting statements to serve external reporting, etc., the use of financial information in investment work must be combined with the actual situation to change the perspective of thinking. The economic resources of an enterprise cover a wide range. When investing in the financial group of an investment center, financial personnel must pay attention to at least the following aspects: cash and non-cash, book value and actual value, on- and off-book assets (such as allocated land use) Rights, franchise rights, patents), tangible and intangible assets, future contract revenue, profitability and stock premium issuance, burdens on state-owned enterprises, contingent liabilities, etc.

2. Cultivate corporate financing capabilities. In order to give full play to the investment function, we must make full use of the financial market and give full play to the financial leverage of debt management. China's financial market is becoming more sound and standardized. Credit, stock, bond and fund financing instruments are increasing. Enterprises need to pay attention to the following aspects: the financial statements must be true, the financial structure ratio is good, the cash flow and credit status are good; Good project or capital investment; train financing personnel, maintain close contact with banks and relevant government departments, and pay attention to public relations work.

3. Fully understand the role of shareholding and debt management in expanding the size of enterprises, and learn about capital operations. Shareholding is the best way to achieve capital concentration. In practice, the ability of capital to control social resources is restricted by the following factors: first, the legal provisions on the proportion of capital; second, the total foreign investment of the enterprise does not exceed 50% of net assets, except for state-owned holding companies; third, the degree of equity dispersion The increase of group investment level is often accompanied by the expansion of enterprise scale. Increasing the scale does not mean that there will be necessarily benefits. In the end, the focus must still be on the project or product. The quality of the project or the good product must be used to promote the optimization of the asset structure and maximize the return on investment. The financial department of the investment center should participate in the entire process of project investment, operation, and withdrawal, and must play a role in fundraising, investment, and asset disposal.

4. Strengthen the financial analysis of project evaluation and weigh the benefits and risks. Projects are the basis for the development of enterprise groups. The development of large enterprises and large groups should be based on large projects. At this stage in China, many enterprise groups are keen to set up companies first, and then look for projects, which is inevitably passive. Enterprises should look for as many project sources as possible and have sufficient information to analyze and compare and make correct decisions. Investment risk mainly comes from three aspects: First, the wrong investment target is selected. Appropriate investment projects should have good basic conditions and profit prospects. The second is the lack of a suitable management team. Good projects must also have strict management. In practice, control risks such as inaccurate estimates, delays in construction, inadequate funding, and increased capital costs occur from time to time due to the absence of appropriate management personnel and internal control mechanisms. The second is the wrong investment timing or selling timing. How to reduce these risks? It is easy to make sense in theory, but hard to see in practice. The focus is to develop your ability to think and act independently, and to select projects that have a stable earnings growth, optimistic prospects, or asset values higher than prices.

(II) Construction period

The construction period of the project is divided into three phases: preparation, construction, and acceptance. The financial department of the investment center has different priorities in different phases. In the preparation phase of construction, in addition to the implementation of funds, you should also participate in external negotiations and bidding from a financial perspective, formulate financial management systems for each link, collect basic data and data that reflect the status of the project, and predict the future role of the project in order to serve as Benchmark for project monitoring. During the construction phase, the original budget and capital investment plan of the project are compared with the actual investment to find out the reasons for the changes and their effects, analyze the investment effects, and provide feedback to the project manager in a timely manner. Take appropriate measures as appropriate. The specific contents include checking whether the time and amount of funds are in place according to the plan 3 whether the investment budget has been controlled; how the project's financial performance is performing; whether the project funding channels and loan conditions have changed, etc. In addition, the implementation of relevant systems in the procurement process of engineering construction equipment shall also be monitored. At the completion and acceptance stage, organize the final accounts for the project, supervise the project to accurately reflect the cost of the project, do a good job in the transfer of property and materials, and follow-up the payment of funds, the transfer of files, and the disposal of remaining materials. At the same time, it is necessary to summarize the experience and lessons of project implementation in order to improve the investment efficiency of the project and improve the level of investment decisions for new projects.

(3) Operating period

The financial department of the investment center must adopt appropriate methods to strengthen management of the profit centers and cost centers during the operating period. In addition to daily financial supervision, it must vigorously promote responsibility accounting and establish a responsibility control and performance evaluation system. This work includes the division of responsibility centers, the establishment of responsibility indicators, the development of indicator calculations, performance evaluation, and links to rewards and punishments. Projects or enterprises can be set up as different responsibility centers according to the situation. The responsibility center can be further divided into several responsibility centers. The establishment of the responsibility center should conform to the principle of management level and effective range, the principle of professional management, the right to responsibility; the principle of accountability, and the principle of controllability. Responsibility centers at all levels need to clearly identify the person in charge (operator or management group), and the person in charge at the lower level is responsible to the person in charge at the next level. The responsible person of the responsibility center must be able to control or exert influence on the affairs within its scope of responsibility. General affairs enjoy the right to manage. Major matters propose a plan and report to the responsible person at the next higher level for approval. Involving the board of directors of a limited company, the person in charge of the higher-level responsibility center serves as the director (chairman) or is entrusted to manage the command relationship. At the same time, the person in charge can assume operating responsibilities according to the proportion of equity or accounting caliber and assess the scope of assessment. In order to effectively protect the rights and interests of shareholders, the board of directors and management staff are urged to be diligent and responsible, and to report the situation to shareholders in a timely manner. In accordance with the provisions of the Company Law and the Articles of Association, the shareholders may send supervisors to participate in the work of the board of supervisors of the joint venture after consultations between the parties to the joint venture. The supervisors dispatched are mainly those with management experience and financial analysis capabilities. The daily business guidance and management are responsible for the investment department's financial department and other relevant departments.

Responsibility indicators are divided into asset management indicators, key work objectives, etc. The weight of each indicator is determined in accordance with the project situation and is clarified in advance. The index value should be determined in accordance with advanced and reasonable principles, with reference to historical levels, the same industry level, and higher-level requirements. The indicators must be broken down and implemented, and the exceeding of indicators is encouraged to be completed. In terms of indicator calculation, the financial department should adapt to the requirements of the responsibility center, make recommendations based on the response progress of the indicator and analyze the reasons, strengthen communication with the project, and achieve process control. It is necessary to report the situation to the leadership team regularly in order to take measures or provide support in a timely manner. At the end of the period performance evaluation, an evaluation committee needs to be established, which is led by the company's leaders, and is composed of relevant personnel, finance, audit and other relevant departments. The evaluation results are linked to the annual income and appointment and removal of the person in charge of the responsibility center.

Attaching importance to the performance evaluation of investment centers

The investment center of an enterprise group is generally located at the headquarters of a group company. For large or very large enterprise groups, an investment sub-center can be set up according to the size of the investment amount or the specialization requirements. The performance evaluation of the investment center itself must be mentioned on the agenda, which is the starting point for enterprise groups to strengthen internal management and establish internal incentive mechanisms. The performance evaluation indicators of investment centers generally adopt investment return rate and residual income indicators. Given the limitations of accounting profits, these two indicators must also be used in the longer term. The term of the current leadership team is usually used as the assessment cycle to reflect the appreciation of capital.

It is different from the capital preservation and appreciation index adopted by state-owned enterprises and is essentially the same. For projects that have not yet yielded revenue during the assessment period, the company's total legal person property and structural indicators may be established during performance assessment. Through a comparative analysis of the balance sheet and consolidated balance sheet of the company's headquarters, it can be seen that the company's asset management team has increased the company's legal person property by increasing the debt ratio, holding, and holding shares. Through the expected analysis of the future investment return on assets, the degree of optimization of the company or project asset structure can be analyzed. In these aspects, the company's finance can play a good role as a counselor or directly participate in it.