FAQs: What is Capital
Part - 4
Powerful Planning! Simplified
What is Capital Budgeting?
Capital Budgeting is a process through which a business
determines and evaluates long term investments or
Such as, purchase of machinery or purchase of new
equipment or rebuilding existing one or new plants or
investing in long term ventures, in order to obtain best
returns on investments.
Various techniques used for Capital Budgeting are Net
Present Value (NPV), Internal Rate of Return (IRR),
Payback Period (PBP), Accounting Rate of Return (ARR)
and Profitability Index(PI). NPV is the present value of
all after-tax cash flows.
IRR is the discount rate that makes the present value of
all future cash flows sum to zero. PBP is the number of
years required to recover the original investment in the
Forecasts are different from budget because they do not
reflect the wish of the company but the market reality.
Forecasting helps companies identify the gaps with the
budget before it become a reality so that they can do
something to bridge the same.
The bridging of it is the tactical planning where teams
like marketing and sales get into action.
ARR is rate of return on average bool value of assets. PI
is the present value of project’s future cash flows divided
by the initial investment.
To understand more about the capital budgeting, supply
chain, planning and forecasting you may join our course
“A goal without a plan is just a wish.”
― Antoine de Saint-Exupéry
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forecasting, you may enroll to our full training
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