Capital Budgeting

Knowledge Center

What is Capital Budgeting? Meaning.

Capital Budgeting (CB) is the internal process of identifying, evaluating, and implementing a firm's investment opportunities. In other words it is the process of preparing a plan for the raising of capital funds and for their deployment.

It can also be described as the process of determining which potential long-term projects are worth undertaking. Examples of typical CB projects are the purchase of new equipment or the introduction of a new product.

Goals of Capital Budgeting

CB aims at analyzing and agreeing on those investments that will enhance a firms competitive advantage and increase shareholder wealth.

Poor capital budgeting decisions will however decrease shareholder value and may ultimately result in a company's bankruptcy.

Multiple Investments and Inflows

The typical capital budgeting decision involves a large, initial and up-front investment, followed by several smaller additional investments and a series of smaller cash inflows (returns).

Capital Budgeting Sources

For an incorporated business, funds may be obtained from a wide variety of sources. The most important ones amongst these are:

• Issuing ordinary shares
• Issuing preference shares
• Issuing loans

Capital Budgeting Methods

To determine what are the right investments for an organization, several capital budgeting techniques are being used. The main ones are:

• Payback Period
• Net Present Value
• Internal Rate of Return

Forum Forum about Capital Budgeting. Below you can ask a question about this topic, share your experiences, report a new development, or explain something. Start a new topic about Capital Budgeting Share your knowledge here (or ask a question)   Capital Budgeting in International Joint Ventures How is financing done in capital budgeting when project is under a 50:50 joint venture of two firms, one in the home country and one in a foreign country?... 4   1 comments Capital Budgeting Definition Source of long term funding of capital expenditures.... 4   3 comments Lifecycle Costing on Capital Equipment Hi, I'm looking for information on life cycle costing on capital equipment.... 3   Capital Budgeting Issues What are problems and weaknesses of capital budgeting systems in practice? Many thanks...... 2   2 comments 🔥 NEW Capital Budgeting Approaches for Acquisition / Divesture of Asset with Strategic Dependence Hello from Australia! I'm keen to hear from people who have come across creative acquisition transaction structures for Transmission Substations and the Capital Budgeting approaches involved. This par... 1

Information Sources Various sources of information regarding Capital Budgeting. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Capital Budgeting and Risk Management Techniques Capital Budgeting, Risk Management Presentation about advanced capital budgeting, including the following sections: 1. Contents 2. Capital budgeting 3. ... Analyzing Financial Feasibility Financial Feasibility Analysis, Project Selection, ROI, NPV, IRR Presentation about Feasibility Studies in the Financial Area. The presentation includes the following sections: 1. Fina...

Research Links Jump to further research sources regarding Capital Budgeting. News Videos Presentations   Books Academic More

Compare also: Portfolio Analysis

Return to Management Hub: Decision-making & Valuation  |  Finance & Investing  |  Strategy & Innovation

More on Management  |  Return to Management Dictionary

This ends our Capital Budgeting summary and forum.