Nargiza kasimova farkhod mukhamedov elkan harebov

Risks associated with investments in working capital of enterprises 
Current assets 
Types of risks 
In
fla
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C
us
tom
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ba
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N
at
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 d
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e 
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C
re
dit r
isk
 
Ex
ch
an
ge r
isk
 
In
te
re
st ra
te
 ri
sk
 
C
ur
ren
cy
 ri
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Li
qui
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is
ks
 
Pr
of
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 ris
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Inve
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1. Stocks (raw materials, finished products) 
 
 
+             
 
2. Accounts receivable 
 
+ 
             
 
3. Cash 
+ 
 
             
 
4. Loans to other enterprises 
 
+ 
  +          +  + 
5. Investments in a deposit account 
+ 
 
            + 
 
6. Investments in foreign currency 
 
 
        +     
+ 
7. Investments in securities 
 
 
    +  +    +  +  + 
 
As can be seen from the table, working capital is affected by fewer risks, 
and short-term financial investments in the unfavorable financial market 
environment can seriously undermine the financial position of the enterprise 
and, in extreme cases, lead to insolvency. 
 
 
 
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4. STUDYING INVESTMENT ATTRACTIVENESS: 
A THEORETICAL BASIS 
 
4.1. The Economic Content of the Investment Attractiveness 
 
The development of a modern integrated economic system depends on the 
effectiveness of the formation of state investment policy and the investment 
attractiveness of the regional economy, industry, and households. 
Studying the criteria of investment attractiveness, first, it is necessary to 
study its main components, as well as to identify optimal ways of managing 
both individual business entities and the economic system. 
As economic relations develop, economic relations undergo significant 
changes, become more complex, and special forms of capital integration appear. 
The components of the economic system are also being modified, the criteria for 
assessing investment attractiveness are being transformed. 
The term “investment attractiveness”, proceeding from the concept of 
“attractiveness”, means a set of certain qualities, including qualitative and 
quantitative characteristics. So, V. Dahl (Даль, 1998) interprets attractiveness as 
“temptation”. 
The definition of the essence of the concept of “investment attractiveness” 
serves as the basis for the study of the principles and conditions for the 
development of the economic system, the functioning of sectoral, intersectoral 
complexes and individual economic entities. 
In our opinion, for a deeper and more complete study of the investment 
process, most attention should be paid to a retrospective analysis of the concepts 
of “capital”, “investment”, and “investment attractiveness”. 
The essence of the concept of “investment” in the scientific community is 
explained in different ways. A critical understanding of the various 
interpretations of this term allowed us to conclude that in the economic literature 
the concept of “investment” is defined as capital aimed at updating the means of 
production, development of production and social infrastructure. 
Significant contribution to the study and development of questions of the 
essence of capital has been made by such scientists as W. Sombart, E. Böhm-
Bawerk, P. Sraffa, H. Kurtz, as well as neo-Ricardian economists J. Stidman, 
L. Manvoring, B. Sheffold. Based on the ideas of A. Smith, D. Ricardo, and 
K. Marx, they developed the classical economic theory through an  in-depth 
study of the formation of the cost of capital. 
It should be noted that representatives of different economic schools 
defined “capital” in different ways: as value bringing surplus value (A. Smith, 
D. Ricardo, K. Marx); part of the wealth involved  in the production process 
(E. Böhm-Bawerk, P. Sraffa); accumulated wealth (F. Wieser, I. Fischer, 
J.S. Mill); cash value reflected in the accounts of firms (J.R. Hicks); the 
combination of equity and equity in private enterprises. 
 
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All these characteristics clarify the concept of “capital”, which means the 
material conditions of the life of society, the development of production and 
social infrastructure, which forms market value and characterizes the efficiency 
of economic activity. 
The modern approach to capital issues is based on the postulates of 
classical political economy, guided by the fundamental principle, the essence of 
which is that in any socio-economic formation, social production is based on the 
use of means of production, objects of labor and labor. That is why in modern 
economic literature there is no single definition of capital, but in practice there 
are many different interpretations of it. Among all known approaches to capital, 
the most meaningful is the definition that belongs to one of the founders of 
classical political economy, K. Marx: “Capital can be understood only as 
movement, and not as a thing that is at rest, which manifests itself in the form of 
money, divided into income and investment. Thus, surplus value manifests 
money as capital” (Маркс, 1983). 
In mercantilist theory, the concept of “capital” is invested with a different 
content. Mercantilists believed that capital is a self-increasing value. At the 
same time, they associated the accumulation of wealth with the sphere of 
circulation without considering any labor costs associated with the creation of 
goods. 
A. Smith and D. Ricardo associated capital with labor costs. According to 
A. Smith, capital acts as accumulated labor, D. Ricardo believed that capital 
serves as a means of production, physiocrats considered land as capital (Попов, 
2007). 
In modern Western economic literature, various interpretations of the 
concept of “capital” are also found. P. Samuelson, D. Begg, S. Fisher, 
R. Dornbusch define it as capital goods produced by the economic system itself, 
used as production factors for the further production of various goods and 
services. According to their theory, such capital goods can appear in the form of 
stocks of production goods and function for both long and short periods of time. 
W. Baumol and A. Blinder define capital as reserves (stocks) of an 
enterprise, equipment and other production resources owned by firms or other 
organizations. A similar position is held by McConnell & Brue (2006), who 
understand by capital the concept of man-made resources used to produce 
goods; goods that do not directly meet human needs. 
J. Robinson connects the concept of capital with money. She believes that 
capital, when not invested, appears in the form of cash. 
According to the definition of K. Marx, “capital is self-reproducing value 
that is included in the continuous process of circulation: money capital turns into 
production capital, the latter turns into commodity one, which is again ready to 
take the monetary form” (Маркс, 1983). 
Understanding capital as an economic category, physiocrats subdivided it 
into main and circulating. F. Quesnay believed that the initial advances make 
 
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their turnover for several production cycles and transfer their value to the 
finished product in parts. A. Smith laid the basis for dividing capital into fixed 
and circulating capital a sign of physical immobility or mobility of various parts 
of capital. To the physically motionless, he ranked buildings, machinery, 
structures that are stationary and do not enter circulation in the production 
process; physically mobile include: raw materials, money, finished goods. 
According to D. Ricardo, fixed capital is that part of functioning capital that is 
more durable and slowly wears out; the other part of the capital, which is often 
reproduced, relates to working capital. Karl Marx called capital that partly 
transfers its value to the finished product, and circulating capital, capital that 
transfers its value to the finished product in one production cycle. 
Based on theoretical experience, we believe that capital is property that has 
its value, is in limited quantity and is capable, by changing its form, to capitalize 
and create additional material benefits. Many modern economists are more and 
more inclined to the need  to adjust the positions of their predecessors, which 
allows a deeper look at the fundamental issues of capital theory. 
So, O. Veretennikova defines the capital of an economic entity as “money 
capital attracted by an enterprise from the capital market from the budget and 
created by the enterprise itself, through which property is formed for doing 
business” (Веретенникова, 2004). 
I. Goncharenko, I. Blank, V. Bocharov, M. Knysh is of the opinion that 
investment is capital intended to produce goods and services. At the same time, 
the capital gain should be sufficient to compensate the investor for refusing to 
use his own funds for consumption in the current period, reward him for the risk 
and compensate for losses from inflation in the future period. 
According to Keynes, savings and investments are identical and should be 
equal, since each of them is equal to the excess of income over consumption 
(Keynes,  1936). We believe that savings are only the initial part of the 
investment process, since not all savings become investments. Investments can 
only be those savings that are aimed at expanding production to increase capital 
and generate income in the medium or long term. 
In Russian law, the concept of “investment” is considered in a broad sense 
and is presented in the form of capital investment, which includes the costs of 
building facilities, expanding, reconstructing and re-equipping existing 
enterprises, acquiring machinery, equipment and material assets invested in 
various types of activities with the purpose  of profit or social effect. In our 
opinion, the concept of “investment” is broader than the concept of 
“investment”, since investment is an investment in capital with varying degrees 
of liquidity with the aim of further incrementing and increasing the value of an 
economic entity. 
In our opinion, capital is an objective economic category that a business 
entity has to carry out its investment activities in order to expand the scale and 
value of the business, make profit and increase its investment attractiveness. 
 
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In economic theory, it is customary to attribute investment forms to their 
specific types by source, volume and purpose, and the direct process of forming 
new capital, which ensures the increment of real capital, is usually called an 
investment or an  investment process. At the same time, in financial theory, 
investment is understood as investment in real or financial assets to obtain 
investment income in the future. The emergence of financial investments is 
associated with the emergence of specific financial markets (Воротилова и др., 
2013). 
Summarizing the above approaches to the definition of investment, we can 
distinguish their main characteristics: 
- investments can generate income 
- investments can be directed to capital, current and intangible assets 
- investments are urgent 
- investors (the main participants in the investment process) while investing 
can pursue the goal of obtaining economic benefits or achieving social benefits 
- the investment process is probabilistic in nature since the expected return 
is closely intertwined with investment risk 
In modern economic conditions, under the influence of external and 
internal factors, the nature and forms of investment, the criteria for evaluating 
the effectiveness of investment projects are changing, the need for developing 
measures aimed at increasing investment attractiveness at any level of the 
economic system is growing. 
The study of the essence of investment attractiveness in various aspects of 
the manifestation was carried out by many modern scientists. In recent years, 
more and more economists have been paying attention to the need to study the 
external and internal criteria for assessing investment attractiveness at any level 
of the economic system. The emerging transformations in the domestic economy 
are manifested in a constant change of criteria, which makes the problems of 
studying the nature of investment attractiveness truly relevant. The theoretical 
approach is an attempt to explain the need to determine the factors that shape the 
investor's idea of the feasibility and effectiveness of investing in objects, to 
determine the criteria that affect the return on capital of a business entity. 
The category “investment attractiveness” remains an occasion for scientific 
discussions, since in the economic literature to date, a holistic view of the 
content of this concept is not given. In economic publications, the term 
“investment attractiveness” is considered identical to several similar concepts: 
“market attractiveness”, “investment climate”, “investment image”, and 
“investment potential”. However, they cannot be considered synonyms. 
Market attractiveness is understood as partnerships between contractors, a 
characteristic of the location and location of business entities. The experts of the 
Rating Agency ‘Expert’  rating agency identify the concepts of “investment 
attractiveness” and “investment climate”, while identifying two important 
characteristics in them - investment potential and investment risk. However, we 
 
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do not share their point of view and agree with V. Kretinin (Кретинин, 2004), 
who notes that the willingness of investors to invest in a state depends on the 
investment climate existing in it. The concept of “investment climate” reflects 
the degree of favorable situation in a given country (region, industry) with 
respect to investments that can be made in a country (region, industry) 
(Подшиваленко и Киселева, 2005). 
It follows that the concept of “investment climate” is a combination of 
economic, political, financial conditions that affect the influx of domestic and 
foreign investments into the country's economy. Investment potential is a 
comprehensive reflection of various aspects of the investment climate in 
investor perceptions. 
It can be considered that the category “investment attractiveness” is a 
component of the investment climate, which is objective in nature and excludes 
subjectivity. 
A variety of views on investment attractiveness requires clarification of its 
content. In a broad sense, the concept of “investment attractiveness” describes a 
system of economic relations between business entities, ranking criteria for the 
effectiveness of investment processes, assessing and forecasting the 
attractiveness of individual potential investment objects. 
Until now, in the economic literature, due to the constant changes in market 
factors of the economic system, a unified approach to determining the essence of 
the concept of “investment attractiveness” has not been developed. Researchers’ 
opinions about investment attractiveness are largely divergent. 
In  modern Russian literature, investment attractiveness was studied by 
M. Kreinina, E. Krylov, V. Vlasova, M. Egorova, I. Blank, V. Mashkin, 
G. Bierman, S. Smidt, A. Krutik, D. Endovitsky, E. Nikolskaya, V. Bocharov, 
M. Stanekova. 
According to M.N. Kreinina (Крейнина, 2005), investment attractiveness 
depends on all indicators characterizing the financial condition and affecting the 
return on capital of the enterprise, the rate of its shares and the level of 
dividends. 
E. Krylov et al. (Крылов  и  др.,  2003)  consider that investment 
attractiveness is “an economic category characterized by the efficient use of the 
enterprise’s property, its solvency, financial stability, its ability to self-develop 
on the basis of increasing capital profitability, the technical and economic level 
of production, the quality and competitiveness of products…  However, 
narrowing the problem, according to researchers, investment attractiveness is 
formed due to the competitiveness of products, customer focus of the enterprise, 
expressed in the most complete satisfaction of consumer requests. “Equally 
important for enhancing investment attractiveness is the level of innovation in 
the framework of the strategic development of the enterprise.” 
At the same time, I. Blank (Бланк,  2007) believes that the main 
components of investment attractiveness are a generalizing characteristic of the 
 
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investment qualities of an  object  and are evaluated by an  investor. In his 
opinion, investment attractiveness to a greater extent reflects the focus on the 
development of the investment policy of the enterprise and allows us to consider 
it as one of the factors in making an investment decision. One of the main stages 
in the development of the investment policy of an enterprise, setting the most 
effective ways to use capital while investing, is to identify individual areas of 
investment activity. In this case, the investment object is evaluated, as well as 
the main factors affecting it. I. Blank claims that investment attractiveness is in 
direct connection with the stages of the life cycle of the enterprise. 
V. Mashkin (Машкин, 2007) understands investment attractiveness as the 
existence of investment conditions that affect the investor’s preferences in 
choosing an investment object. 
According to Bierman & Smidt (2006), investment attractiveness is 
represented by a set of indicators that characterize the financial condition of the 
enterprise. 
D. Endovitsky (Ендовицкий, 2003), A. Krutik and E. Nikolskaya (Крутик 
и  Никольская,  2000) agree that investment attractiveness is a general 
characteristic of all the shortcomings and advantages of the enterprise in 
question. 
V. Bocharov (Бочаров,  2000) considered the analyzed term from the 
position of the securities market and determined the investment attractiveness by 
the reliability of the securities issued by this enterprise. 
M. Stanekova (Станекова, 2007) believes that investment attractiveness is 
the presence of an economic effect (income) from investing free cash in 
corporate securities with a minimum level of risk. Investment attractiveness can 
be assessed using market activity indicators. 
The approach of A. Syomin & A. Kibirov (Сёмин  и  Кибиров,  2013) is 
interesting, which represent investment attractiveness in the form of two 
conceptual positions: “…the first interprets  investment attractiveness as a 
characteristic of the level of favorable economic conditions for investments”. 
According to scientists, the country, the federal okrug, oblast, krai, industry, 
enterprise, and business entity may have investment attractiveness. “The second 
conceptual position characterizes investment attractiveness as a set of 
organizational, credit, financial, economic and legal conditions that determine 
the choice of an investment object for investors to invest in order to obtain any 
benefit.” The authors believe that investment attractiveness is considered as a 
subjective assessment by an investor of a particular investment object from the 
point of view of the appropriateness of investing (Сёмин и Кибиров, 2013). 
An integrated view of the essence of investment attractiveness is that most 
researchers distinguish it as an independent economic category, which is a 
cumulative characteristic of the investment potential of a business entity, 
reflecting the effective use of investment objects. 
 
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A review of various views and approaches to determining the category of 
“investment attractiveness” allows us to argue that it is a system of economic 
relations between business entities regarding the effectiveness of the 
development of an investment object. The scientific community has developed 
different approaches to identifying, evaluating,  and analyzing the investment 
attractiveness of the region, individual industries,  and areas of economic 
activity. Many authors, including M. Kreinina, E. Krylov, V. Vlasova and 
M. Egorov, reflected the essence of the concept rather generalized and did not 
determine the investment attractiveness from the point of view of investors. The 
systematization of various approaches and points of view to understanding the 
economic content of the considered category of “investment attractiveness” 
made it possible to reveal their ambiguity due to the processes taking place in 
various economic systems with different investment potentials and investment 
risks. In particular, the definition of V. Bocharova and M. Stanekova is suitable 
only for analysis of stock market enterprises. Interpretation of G. Bierman and 
S. Smidt, V. Mashkin, I. Blank includes only one component of this concept, 
which is, in our opinion, insufficient. Definition of A. Semin and A. Kibirov 
seems truly clear and voluminous, fully reflecting the essence of investment 
attractiveness. This definition can be used as the main, generalizing all the 
above. 
Based on the study and comprehension of different approaches to the study 
of investment attractiveness and the criteria that determine it, we proposed an 
authors’ brief description of the concept of “investment attractiveness”: 
- it is advisable to consider investment attractiveness at all levels of the 
economic system — state, regional, industry, level of business entities 
- investment attractiveness is an independent economic category — a set of 
external and internal factors, as well as qualitative and quantitative indicators of 
the investment potential of any level of the economic system 
- assessment of investment attractiveness at all levels of the economic 
system is carried out in the current period (analysis of the current situation) and 
the forecast period (forecast of the investment market). 
Analysis of investment attractiveness at the state level is carried out based 
on the following factors: 
- political situation in the country 
- the level of socio-economic development of the country and the standard 
of living of the population 
- macroeconomic indicators characterizing the state of the country's 
economy (GDP, GDP per capita, gross capital formation, investment in fixed 
assets, financial investments of enterprises and organizations, foreign 
investment, commissioning of fixed assets, amount of work performed under 
construction contracts, etc.) 
- macroeconomic indicators providing a favorable investment climate (real 
interest rate on loans, refinancing rate, money supply M2, share of M2 in GDP, 
 
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share of cash in M2, foreign exchange reserves, consumer price index, producer 
price index of industrial products, official US dollar rate to national currency, 
etc.) 
- The regulatory framework in the field of development of economic 
relations 
- the perfection of tax legislation. 
The forecast for macroeconomic development is based on expert and 
statistical assessment of the following factors: 
- assessment of political risks 
- Prospects for tax regulation of investment and entrepreneurial activities 
(benefits and tax burden) 
- prospects for the development of monetary policy 
- promising state programs for the development of the country’s economy 
and individual areas of economic activity (priority areas of budget financing) 
- Prospects for the development of the financial market. 
The investment attractiveness of the region is a combined characteristic 
from the perspective of the investment climate, the level of infrastructure 
development, the nature of investment risks. The analysis and forecast of the 
regional economy are based on the following indicators: 
- gross regional product and its share in the country’s GDP 
- the availability of qualified personnel 
- development of transport, information, and management infrastructure in 
the region 
- the proportion of unprofitable city-forming enterprises in their total 
number in the region 
- index of physical volume of investments in fixed assets 
- sectoral structure of investments in fixed assets by region 
- demographic characteristics (the proportion of the region’s population in 
the total population of the country, the ratio of urban and rural residents, the 
proportion of the employed population, skill level) 
- the level of development of market relations (the proportion of state and 
municipal enterprises, the number of enterprises with foreign investment, the 
number of banks, stock exchanges, insurance companies, etc.) 
- level of state support for the region (level of redistribution of budget 
revenues, state lending, tax benefits for regional and local taxes). 
In the context of industry, the analysis and forecast of investment 
attractiveness is based on the following factors: 
- the level of intra-industry competition, characterized by the total number 
of enterprises and the number of monopolistic enterprises 
- the level of social tension, characterized by the ratio of the average wage 
in the industry to the cost of living 
- the level of state support for the industry, technical and economic industry 
indicators (gross output of the industry and its share) 
 
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- industrial production index, in % to the previous year 
- coefficient of renewal of fixed assets 
- the coefficient of disposal of fixed assets 
- the degree of depreciation of fixed assets 
- profitability of products sold 
- the proportion of profitable organizations 
- phase of the industry life cycle 
- social significance of the industry (number of employees) 
- industry average rate of return 
- payback period for capital investments in the industry 
- share of state property. 
Analysis of the investment attractiveness of business entities is based on an 
assessment of factors affecting investment activity: 
- demand for products 
- availability of own financial resources 
- the state of the technical base 
- the profitability of investment in fixed assets. 
The forecast of investment activity of the enterprise is based on the 
following factors: 
- assessment of the timing of the acquisition of fixed assets and their 
average age 
- assessment of the reasons for the disposal of fixed assets 
- return on sales 
- profitability of production 
- return on invested capital 
- the degree of depreciation of fixed assets 
- level of construction in progress 
- payback period 
- energy and resource efficiency of production 
- automation and mechanization of the existing production process 
- introduction of new production technologies 
- the possibility of creating new jobs. 
Our idea of the investment attractiveness of all levels of the economic 
system from the perspective of a systematic approach is shown in Figure 7. 
The participants in the process of assessing investment attractiveness are 
the main links of the economic system: the state, region, industry, and business 
entity. 
 
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