What is an investment center?
Investment Center is a sales department or function responsible for managing specific income, costs, assets and liabilities. This financial information usually concerns capital investments in securities, other companies or facilities of the company. Larger companies may have multiple investment centers depending on the number of investments and the size of their business operations. Managers often have to meet a specific return on the percentage of investment, as predetermined by company policy. The basic formula is profit from individual investment minus investment costs. This number is then divided by investment costs. The return on the investment financial formula is extremely popular in the business environment because it is simple and versatile. Managers can apply this formula to different pieces of financial information regardless of the type of investment. Managers may have an economic indicator for comparing the company's different capital investments.
Investment center can also use other different company financing formulas to select new business opportunities. While the return on investment measures the historical financial return on investment, it may be poorly applied when trying to select new investment opportunities. In choosing new investment opportunities, investment centers managers can use the pure current value, a period of return or similar formulas of corporate finances. The net current calculation of value estimates all future inflows of cash, the discount is back to the current value of the dollar and compares the total discounted future cash flows with initial capital investment expenditure. If the inflow of cash is higher than the initial outflow of cash, companies often consider it a profitable opportunity.
Calculation of return periods with a finer financial formula. Managers estimate the future monthly inflow of cash from new investment opportunities and distribute the beginningEducation capital expenditure with a small amount of fleet. The resulting number shows how many months they will need new opportunities to break and eventually make profits. The payback period is usually considered less reliable than other corporate finance formulas due to its too simplistic estimation techniques.
A significant disadvantage of managing the investment center is the ability of one individual to manipulate financial information. Managers who need to improve their investment number can change financial information investment to increase the return rate. Classic manipulation techniques include underestimation of costs or overcome income and cash flows. Managers also move costs from their investments in other business activities. The shift of these costs gives tilus that investments are estimated by estimated revenues.