#corpfinance
The typical steps in the capital budgeting process:
- Generating good investment ideas to consider.
- Analyzing individual proposals (forecasting cash flows, evaluating profitability, etc.).
- Planning the capital budget. How does the project fit within the company's overall strategies? What's the timeline and priority?
- Monitoring and post-auditing. The post-audit is a follow-up of capital budgeting decisions. It is a key element of capital budgeting. By comparing actual results with predicted results and then determining why differences occurred, decision-makers can:
- Improve forecasts (based on which good capital budgeting decisions can be made). Otherwise, you will have the GIGO (garbage in, garbage out) problem.
- Improve operations, thus making capital decisions well-implemented.
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