Financing Investments and Growth - 3

Rationalisation and increasing the company’s turnover are the main goals of investments

The investments are primarily targeting the increase of revenue e.g. the company’s turnover (71%) and rationalisation of ongoing processes for cost reduction (48%). Just under a third of companies focus on technological innovations (32%) or Research & Development (31%). Fulfilment of compliance standards such as regulatory requirements (12%) or environmental aspects (8%) play only a minor
role.

The fulfilment of compliance standards, such as regulatory requirements, does not affect all companies in equal measure. With increasing regulatory requirements passed by legislation, the Finance and the Logistics sectors are confronted, since the financial crisis, to increasing requirements regarding emissions and safety aspects, something also reflected in the investment objectives per sector (see fig. 20).

In addition to the common objective of revenue increase, the investments in the Automotive and Pharmaceutical/ Chemical industries are strongly focused on research & development; in all other industry sectors, the main focus of investments is on measures of rationalisation.

Financing

In order to finance their investments, companies have various options at their disposal, which can be systemised according to different criteria. Besides the duration of provision of capital, the sources of capital and the legal status of the investor are the most common classification criteria to differentiate the types of financing. As to the sources of capital, there is a distinction between external financing i.e. external investors lead the company to financial resources, and internal financing, i.e. the financial resources generated by the company itself.

A further type of systemisation distinguishes the company’s perspective from that of the shareholder. This is where the criterion of the legal status of the investor is
based, i.e. whether the company will have financing from equity or borrowed capital. Similarly, we speak in this context of self-financing and external financing. 

Companies resort mainly on internal financing tools (profits, depreciation and cost savings) to finance their investments

The results of the survey make it clear that companies have a strong tendency to use their internal financial resources for investments (see fig. 22). 95% of all companies use the leeway they have from profits and depreciation for their investments. It is also worth noting that 87% of companies actively use their cost savings as financing tool, of which 27% intensively and 14% very intensively.
When external funding is requested, this usually applies to financial tools such as leasing (60%) and traditional bank loans (55%). However contracting, which mostly
applies in relation to energy efficiency, is used by almost a third of companies (see fig. 22). Equity capital (23%), the issuing of shares (14%) or the production of bonds is mostly found in larger companies with over 1,000 employees. Finally, 39% of companies use public subsidies.

from: Barometer Cost Management 2014 by Expense Reduction Analysts & SIIE EBS Business School

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