Capital investment or capital budgeting is the primary need for every organization operating in the market. Capital is the main resource of an organization. It is only through the processing of capital that the organization can run in a proper way in the market. Capital investment is the first step towards building a business house.
Jay Blackmore one of the renowned corporate finance executive states that capital is the seed of a business tree. Every business be it a small one or a huge conglomerate needs capital for making a move in the market.
Now here it will be a discussion on one of the most important aspect of capital investment and that is capital budgeting. This is the most fundamental point that needs to be undertaken by a company to do business in the market. There is a process of capital budgeting. Here is a look at how it goes.
- Project identification and generation- This is the first step towards capital budgeting. In this step the company generates a proposal for various investments. Investment can be of various types. A company can invest in any particular area which it thinks can bring a good amount of profit. Sometimes it can be an investment on the existing goods or it can be for the launch of new products.
- Project screening and evaluation- In this step the company selects all the correct elements to judge the desirability of a proposal. This particular action must match the objective of the firm which is definitely to maximize the market value. Over here the cost estimation is also done. The total cash outflow and inflow calculation is performed in this step by the management.
- Project selection- Project selection is also a part of capital budgeting process. The projects are selected on the basis of the capital budget. There are various requirements of projects selection and capital is one of the primary one. Capital resource helps analyzing the projects on the basis of financial ground. Once the proposal gets finalized, the different alternatives for raising and acquiring funds need to be explored by the finance team. In this step comes, the actual process of capital budgeting.
- Implementation- Capital budgeting also works as a part of implementation process. Money is spent and then the projects get implemented. Every project is implemented based on capital value of an organization. The entire management takes up the risk of implementing the projects based on the money that has been allocated.
- The final stage of capital budgeting is performance review. At the final stage the company asks for the review on the investment that has been done. It is necessary to review the work on the basis of capital budgeting.
Every organization needs a huge processing in capital budgeting. It is the basic need of the company and the entire cash flow system is based on it. Jay Blackmore , the renowned corporate finance executive can be consulted for better knowing and understanding the entire concept of capital budgeting. It is indeed the most essential feature for an organization.