• Why-Capital Budgeting

    Capital budgeting is the financial tool to identify and evaluate any financial projects which requires capital investment. This is same as the budget which deals with the cash inflow, cash outflow and the profit or loss at the end from any specific financial project undertaken. Capital budget also helps to identify the long term benefit of the capital investment and the return of investment.

    Why do we need capital budgeting?

    Correct capital budgeting is very much important for a company as it helps the management

    • To calculate the expected cash inflow from the project.
    • To evaluate a project in terms of profit earned.
    • To take long term capital investment decision.
    • To expand the business through new investments.
    • To undertake the replacement projects to replace old machines and plant with the new ones to increase production.
    • To evaluate the capital return of launching a new product in the market this requires high capital investment.

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