Thursday, September 3, 2015

What is Capital Budgeting

Investment of funds &Financial are 2 crucial functions of financial management. The investment of funds is a capital budgeting requires a number of decisions to be taken in situation in which funds are invested & benefits are expected over a long period. The finance manager is required to do proper project planning and commercial evaluation of projects to know in advance technical feasibility and financial viability of the project. Finance manager in addition to commercial evaluation of projects is also required to do social cost benefit analysis of projects.
Meaning of Capital Budgeting:- Capital budgeting means planning for capital assets. The capital budgeting decisions means a decision as to whether or not money should be invested in long term projects such as the setting up of a factory or installing a machinery or creating additional capacities to manufacture a part which at present may be purchased from outside. Capital budgeting includes a financial analysis of the various proposals regarding capital expenditure to evaluate their impact on the financial condition of the company & to choose the best out of the various alternatives. The finance manager has various techniques & tools by which he assists the management in taking a proper capital budgeting decisions.

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