Capital budgeting is the process businesses use to evaluate the
future profitability of proposed projects, so that they can best
determine where to allocate limited capital funds. Capital funds
pay for capital expenditures, which are large projects or ones
that won't see a return for at least one year, and probably
longer. (These differ from operational expenditures). Successful
companies have a continuing need for capital investment to, for
instance, upgrade equipment to continue existing operations.
They can also need to expand in the case of a growing product
line or division. Acquisitions also present opportunities to
grow a business. But you can't have it all. Growth of a business
can be limited by the availability of capital. When capital is
limited, allocating that resource properly is a critical skill
which involves crunching current numbers as well as taking into
consideration future market conditions, such as inflation and
demand for a certain product. Some capital investment can be
funded out of ca