Reinvesticij

Reinvesticij, commonly referred to as reinvestment, is the practice of using a company’s earnings or capital gains to fund future growth rather than paying them out to shareholders as dividends. In many South Slavic languages, the term reinvesticija or reinvesticije is used for this concept, with reinvesticij appearing as a transliteration variant in some texts. The core idea is to convert current profits into productive assets that can generate additional profits in the future.

How it works. Reinvestment typically occurs through retained earnings, but can also involve internal financing for capital expenditures, research and development, acquisitions, or increases in working capital. Firms may finance reinvestment entirely from profits or combine it with external sources such as debt or equity, depending on cost, risk, and capital budgeting considerations. Effective reinvestment requires evaluating potential projects using techniques like net present value or internal rate of return and selecting those that meet a required hurdle rate.

Implications. Reinvesticij influences a company’s growth rate, capital structure, and dividend policy. Benefits include higher future earnings potential, stronger competitive position, and preserved ownership control. Risks include opportunity costs of not delivering current returns to shareholders, the possibility of misallocated capital, and higher financial risk if new investments do not perform as expected. Strategic reinvestment is often aligned with long-term value creation and may be shaped by market conditions and corporate objectives.

Measurement. Common metrics include the retention ratio (the portion of earnings not paid as dividends) and the sustainable growth rate, which links profitability, efficiency, and reinvestment to growth. See also retained earnings, dividend policy, and capital budgeting.