Capital Budget shows a firm's spending plans on fixed assets such as large equipment.
A business uses capital budgeting to decide which planned fixed asset purchases it should approve and which it should reject. Each proposed fixed asset investment is given a quantitative assessment through this procedure, providing a sound foundation on which to base a decision.
If a fixed asset investment fails, the amount of money involved may be so high that it could force a company into bankruptcy. As a result, capital budgeting is a requirement for bigger fixed asset proposals.
Smaller investments provide less of a problem; in these instances, it is preferable to greatly shorten the capital budgeting process so that the emphasis is primarily on making the investments as quickly as possible.
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