SELECT YOUR LANGUAGE

The purpose of capital budgeting is to make long-term investment decisions about whether specific projects will result in sustainable growth and provide the expected return on the investment. Capital budgeting is defined as the process for leaders in the business to determine which fixed asset purchases or projects are worth the investment.  Before making the investment, they have to do a thorough analysis to ensure profits to the company.  The process could involve high risks, because the projects using require a large amount of money.  

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The internal rate of return and payback period are methods sometimes used in determining valuation in addition to the net present value through critical analysis of investments.  It is important to note that even after thorough analysis, the intended outcome is not always guaranteed, which is why I mentioned it involves high risks.  The key is to hopefully decrease the amount of funds that go out of the business and increase the amount of funds that go back into the business as profit.  It is best that smaller businesses focus on resources and not make any large investment that could be detrimental to the sustainability of their business.  Capital budgeting is extremely important to the financial success and strategic decision making processes of the business.

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To learn more about Capital Budgeting watch this YouTube video:

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By Jason Torrents