What is Capital Budgeting: Certification, Courses, Career, Salary, Admission & Fees

Updated on May 20, 2025 05:58 IST
Rashmi Karan

Rashmi KaranManager - Content

The most important the main purpose of companies is to get more profitability at the lowest cost and within the shortest time to recover investments quickly. Thus it is very much essential to carry out capital budgeting to maintain and survive the fluctuations that may lead to the failure of a project or a company’s operations. The cost of capital must offer a minimum return so that the investment can add value to the company.

What is Capital Budgeting?

Capital budgeting is the process of planning and managing the company’s long-term investments”. Gómez S. (2015)

Capital budgeting is the process of making investment decisions regarding long-term assets, such as building new production facilities or investing in machinery and equipment. It is the process of deciding whether or not to invest in a particular project, as other investment possibilities may not be beneficial.

Capital budgeting enables the managers to identify, develop and evaluate investment opportunities that can be profitable for the company. This evaluation is made by checking whether the cash flows that the investment in an asset will generally exceed the flows required to carry out the said project.

Also read- 

What is Business Management Course?

Q:   What is an example of a capital budget?
A:

An example of capital budgeting in everyday life is a family deciding whether to buy a new car. The family would have to make an approximation of the cash inflows and outflows from buying the car, including the initial price, maintenance costs, fuel prices, and resale value.

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Q:   Why is Capital Budgeting Important?
A:

Capital budgeting is important because asset expansion usually involves huge expenses, and before a company can spend a large amount of money, it must have sufficient funds available. Therefore, a company contemplating a major capital expenditure programme should set up its financing several years in advance so that the required funds are available.

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Q:   What are the objectives of Capital Budgeting?
A:

Capital budgeting aims to –

  • Balance the different financial sources, depending on the investments that the organisation intends to make

  • Determine the optimal financial structure, with an adequate proportion between own and external resources, trying to keep the cost of capital as low as possible

  • Facilitate the preparation of forecast accounting statements and operating budgets.

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Table of contents
  • Why Do Companies Need Capital Budgeting?
  • Popular Private Capital Budgeting Colleges in India
  • Capital Budgeting Methods
  • How to Prepare a Capital Budget
  • Why Should You Learn Capital Budgeting?
  • Popular Capital Budgeting Specializations
  • Most Popular Courses
  • Top Capital Budgeting Courses
View More

Why Do Companies Need Capital Budgeting?

You can check out the pointers below to know the main reasons why companies need a capital budget -

  1. For Evaluating LongTerm Investments
  2. To Give Resources Effectively
  3. For checking all the Risks
  4. To check the Time Value of Money
  5. Measuring the Performance
  6. Building Confidence of the Stakeholders
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Capital Budgeting Methods

Methods used to evaluate fixed assets under a formal capital budgeting system are as mentioned in the pointers below for the ease of the students– 

  • Net Present Value (NPV) Analysis
  • Internal Rate of Return
  • Constraint Analysis
  • Payback Period
  • Avoidance Analysis

How to Prepare a Capital Budget

Find Investment options, calculate Cash Flows, focus on Profitable Projects, roll out the Project, and monitor and conduct a Post Audit are the steps you should follow to prepare a Capital Budget.
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Banking Courses

Important Exam Dates

DatesUpcoming Exam Dates
01 Dec ' 25 - 14 Jan ' 26

IGNOU TEE Dec 2025 exam

DatesPast Exam Dates
12 Jun ' 25 - 19 Jul ' 25

IGNOU TEE June 2025 exam

01 Mar ' 24 - 02 May ' 24

Online Applications

01 Dec ' 23 - 09 Jan ' 24

IGNOU TEE Dec 2023 exam

Q:   When does a company need to Capital Budget?
A:

Some scenarios in which a company needs a capital budget imperatively are as follows:

  • Territorial expansion.

  • Conversion of the business to franchise.

  • Acquisition of companies from other countries as subsidiaries.

  • Investment in human capital based on advanced training.

  • Renewal of non-current assets, such as machinery or vehicle fleet.

  • Business line expansion.

Q:   What are the limitations of capital budgeting?
A:

Some limitations of capital budgeting are as follows:-

  • It has long-term implementations in business operations. Capital budgeting can't be used for short terms. A wrong decision in the early stages of the project can affect the company's long-term survival. 

  • An inadequate investment makes it challenging for businesses to enhance their budget and capital.

  • Capital budgeting involves huge funds, so the decision must be taken carefully.

  • Decisions in capital budgeting could be more adaptable as locating the market for capital goods takes work.

  • Capital budgeting decisions have a long-term and significant effect on the business's profitability.

  • Higher degrees of risks involved because it requires predicting future cash flows for long-term investments.

Why Should You Learn Capital Budgeting?

Capital budgeting is a very important skill for business management, accounting and finance professionals. Capital budgeting helps the organizations in making sound investment decisions, managing risk, and maximizing profit. Learning capital budgeting can give different career opportunities and increase financial decision making skill. You can chek out some of the reasons why learning capital budgeting can be good for your career in the table given below -

  • Make Strategic Investment Decisions
  • Develop Risk Assessment Skill
  • Master Discount Rate Calculations
  • Gain Expertise in Lease vs. Buy Analysis
  • Better Career options
    • Financial Analyst
    • Corporate Finance Manager
    • Investment Analyst
    • Management Consultant

Popular Capital Budgeting Specializations

Following are the most popular Capital Budgeting Specializations . You can explore the top Colleges offering these Specializations by clicking the links below.

Popular Specializations

Most Popular Courses

Following are the most popular Capital Budgeting courses, based on alumni reviews. Explore these reviews to choose the best course in Capital Budgeting.

Top Capital Budgeting Courses

Listed below are some of the top online capital budgeting courses to help you gain the right skills.

Course Name 

USPs

Capital Budgeting – The Investment and Financing decision by Udemy (Duration: 3 hours)

  • Explore the traditional methods of investment appraisal.
  • Understand the advantages and disadvantages of NPV compared to IRR.
  • Learn to evaluate – Inflation, relevant and opportunity costs and revenues, issue costs, finance costs and tax losses.

Capital Budgeting Techniques in Financial Appraisal by Udemy (Duration: 3.5 hours)

  • Learn about capital budgeting techniques - PBP, Average Rate of Return, NPV, Discounted Payback Period, IRR.
  • Understand how to do financial analysis using capital budgeting 
  • Choosing projects using capital budgeting techniques

Project Valuation and the Capital Budgeting Process by Coursera (Duration: 17 hours)

  • Calculate NPV, IRR, and PBP for cash flows using advanced spreadsheet techniques.
  • Learn using NPV, IRR, and PBP to assess and compare investment opportunities.
  • Understand the impact of depreciation, taxes, inflation, and foreign exchange on cash flows.
  • Learn advanced financial modelling.

Financial Management for Managers - Capital Budgeting by Alison (Duration: 6 - 10 hours)

  • Learn the entire capital budgeting process for informed investment decisions.
  • Understand different investment types to align with organizational objectives.
  • Master NPV, IRR, and payback methods for proposal assessment.

Capital Budgeting Techniques by Great Learning (Duration: 1.5 hours)

  • Free course enrollment.
  • Master NPV & IRR.
  • Estimate project cash flows using MS Excel.
  • Learn capital budgeting techniques with practical examples.

 

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