A-Z Popular Blog Management Search »
Management
 Advertisements
Related Guides

7 Examples of Capital Budgeting

 , updated on
Capital budgeting is the process of planning investments in a business. It is an element of strategic planning that produces a capital budget. In many cases, a firm has a long list of capital projects under consideration that far exceed the firm's resources. Capital budgeting is a process of comparing investments to plan capital spending. The following are common considerations.

Strategy

A firm's plan to achieve its objectives and goals. For example, if a firm plans to reduce its environmental impact capital investments in things such as energy infrastructure may be required.

Return

The present value of future cash flows that the investment will generate. Modeled with techniques such as return on investment and payback period.

Cost of Capital

An investment that doesn't return more than your cost of capital has a negative real return. For example, a firm with a cost of capital of 11% may require return on investment of at least 20%. As such, this firm will find fewer worthy investments as compared to a firm with a 4% cost of capital.

Liquidity

The cash position and cycles of an organization. It is critical that an organization never run out of cash. As such, a firm that is low on cash may have to forgo investments even if they are critical to strategy or have a high payback.

Risk

A low risk investment with return of 10% may be far more attractive than a high risk investment with a return of 15%. Modeling risk exposure for significant capital expenditures is basic due diligence.

Competition

In some cases, an investment is required to stay competitive. As such, return can be modeled by how much the firm will lose if the investment isn't made.

Compliance

Investments that are required by rules and regulations such as replacing equipment that is polluting the environment or dangerous to workers.
Overview: Capital Budgeting
Type
Definition
The process of planning investments in a business.
Related Concepts

Knowledge Management

This is the complete list of articles we have written about knowledge management.
A Posteriori
A Priori
Anti Information
Artifact
Artificial Knowledge
Body Of Knowledge
Classification
Corporate Memory
Data
Disinformation
Dispersed Knowledge
Document Control
Document Quality
Domain Knowledge
Information Asymmetry
Information Management
Information Pollution
Knowledge Analysis
Knowledge Audit
Knowledge Discovery
Knowledge Loss
Knowledge Measurement
Knowledge Processes
Knowledge Quality
Knowledge Risk
Knowledge Transfer
Knowledge Value
Knowledge Velocity
Knowledge Waste
Knowledge Work
Known Unknowns
Master Copy
Meta Knowledge
Outside Context Problem
Permalink
Propositional Knowledge
Situated Knowledge
Storytelling
Tacit Knowledge
Unknown Unknown
More ...
If you enjoyed this page, please consider bookmarking Simplicable.
 

Budget

An overview of the common types of budget.

Budget Planning

A definition of budget planning with examples.

Budget Estimates

A definition of budget estimate with examples.

Cash Budget

A definition of cash budget with examples.

Strategic Planning

A list of techniques for developing and implementing a strategy.

Macro Environment

A list of macro environment components.

Business Plan vs Business Case

The difference between business plan and business case explained.

Capability Analysis

Analysis of organization abilities.

Strategy vs Plan

The difference between a strategy and a plan.

Estimates

The common types of estimates.

Market Intelligence

A definition of market intelligence with examples.

Industry Change

An overview of industry change with examples.

Types Of Strategy

The basic types of strategy.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map