Reinvestment is a relatively cheap method of financing

The main task that entrepreneurs set for themselves is profit. This receipt is an element of net income, which was received after production and realized as cash assets of the enterprise. Profit can be used in many ways. Next, consider one of them, allowing to expand the scope of the organization.

Terminology

Reinvestment of profit is a relatively cheap way of financing an enterprise. The purpose of the measures taken to distribute income is to expand entrepreneurial activity. And the degree of such development of the organization shows the coefficient of reinvestment. In this case, it is very important to distribute the revenues correctly, including between the participants of the joint-stock company. During the procedure of profit distribution it is important to take into account the interests of the whole society, specific entrepreneurs and personnel.

The essence of the process

Reinvestment is a repetition of the procedure for investing the initial income. It is carried out in order to obtain additional income. If, however, it is easier to explain, then we can say that reinvestment is an increase in the contribution at the expense of money considered to be interest. They are accrued in the period between the re-investment of finance in the development of the enterprise.

Benefit

Precisely, reinvestment is a profitable procedure. After all, in fact, there is an addition to the existing interest of new ones. Often this order is called a "compound interest". An addition to the initial capital is considered to be simple . But Russian banks rarely provide reinvestment services. Or they offer such conditions that make the transaction less profitable. But in other countries, reinvestment has gained wide popularity.

Dependence of incomes

So, under what conditions should reinvestment be carried out so that the depositor can derive maximum benefit? Revenues will be greater if the procedure is performed more often. Reinvestment of interest, occurring once a month, can be considered very profitable. The most successful option is an investment held every week.

PAMM-accounts

About features of reinvestment can be told, using the description of PAMM-accounts. This type of investment is more accessible and needs less initial capital. There are other positive aspects. Thus, the manipulation of the cash account (replenishment and withdrawal of funds) is available at any time. In the case of PAMM-accounts, the manager has, apart from the investor's money, his own. Reinvestment is a procedure that necessarily takes place if the deposit is in the PAMM-account of brokerage firms. The investor only needs to replenish the account and withdraw funds from it. The last do not necessarily - you can leave money. Then they will become part of the contribution. But for reliability it is worth translating parts of profits into different accounts. You can make a simple calculation. If the investment is ten thousand dollars, the profit is four percent, then after the next reinvestment, the interest will be calculated from the new amount, that is, from ten thousand four hundred dollars.

rules

Interest income will accrue during the time that reinvestment is made. The degree of profitability of this procedure is determined by the amount of the contribution and its duration. Regular investment raises initial capital, while reinvestment affects the amount of profit. It is important not to rush to withdraw interest income. It is advisable to re-direct them to reinvestment.

Is it true that reinvestment of capital is a financial panacea?

Each investor must decide on his own whether he should turn to such a distribution of funds as the main source of income. After all, choosing such a way of earning, it is important to have the ability to feel the market, to differ by the speed of reaction to any changes in its range, not to be afraid of risk. If we compare capitalization with the receipt of income from shares, then we can say that reinvestment is less risky. But even this method is threatened by inflation.

Final part

Distribution of net profit is taken by enterprises. If you turn to the law, it becomes clear that the allocated part goes to the federal budget or to the budget of another entity of our country, representing tax or other mandatory payments. It can be said that that part of the enterprise's profit, which was obtained through reinvestment, is an internal source of financing for the organization. The income received in this way protects the firm's budget from additional expenses. If the organization is engaged in reinvestment, then the number of shareholders of this enterprise remains unchanged.