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Capital budgeting |
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Definition of Capital budgetingCapital budgetingThe process of choosing the firm's long-term capital assets. capital budgetingRefers generally to analysis procedures for ranking Capital BudgetingThe process of ranking and selecting investment alternatives and capital budgetinga process of evaluating an entity’s proposed Capital budgetingThe series of steps one follows when justifying the decision to purchase
Related Terms:capital budgeting decisionDecision as to which real assets the firm should acquire. Cost of capitalThe required return for a capital budgeting project. DependentAcceptance of a capital budgeting project contingent on the acceptance of another project. Hurdle rateThe required return in capital budgeting. Post-auditA set of procedures for evaluating a capital budgeting decision after the fact. cash flowthe receipt or disbursement of cash; when related Internal rate of returnThe rate of return at which the present value of a series of future Payback methodA capital budgeting analysis method that calculates the amount of Cost of CapitalThe discount rate that should be used in the capital budgeting process. Salvage ValueThe value of a capital asset at end of a specified period. It is the current market price of an asset being considered for replacement in capital budgeting. Average cost of capitalA firm's required payout to the bondholders and to the stockholders expressed as a CapitalMoney invested in a firm. Capital accountNet result of public and private international investment and lending activities. Capital allocationdecision Allocation of invested funds between risk-free assets versus the risky portfolio. Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capital budgetA firm's set of planned capital expenditures. Capital expendituresAmount used during a particular period to acquire or improve long-term assets such as Capital flightThe transfer of capital abroad in response to fears of political risk. Capital gainWhen a stock is sold for a profit, it's the difference between the net sales price of securities and Capital gains yieldThe price change portion of a stock's return. Capital leaseA lease obligation that has to be capitalized on the balance sheet. Capital lossThe difference between the net cost of a security and the net sale price, if that security is sold at a loss. Capital marketThe market for trading long-term debt instruments (those that mature in more than one year). Capital market efficiencyReflects the relative amount of wealth wasted in making transactions. An efficient Capital market imperfections viewThe view that issuing debt is generally valuable but that the firm's Capital market line (CML)The line defined by every combination of the risk-free asset and the market portfolio. Capital rationingPlacing one or more limits on the amount of new investment undertaken by a firm, either Capital structureThe makeup of the liabilities and stockholders' equity side of the balance sheet, especially Capital surplusAmounts of directly contributed equity capital in excess of the par value. CapitalizationThe debt and/or equity mix that fund a firm's assets. Capitalization methodA method of constructing a replicating portfolio in which the manager purchases a Capitalization ratiosAlso called financial leverage ratios, these ratios compare debt to total capitalization Capitalization tableA table showing the capitalization of a firm, which typically includes the amount of CapitalizedRecorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures Capitalized interestInterest that is not immediately expensed, but rather is considered as an asset and is then Complete capital marketA market in which there is a distinct marketable security for each and every Cost of limited partner capitalThe discount rate that equates the after-tax inflows with outflows for capital Dedicated capitalTotal par value (number of shares issued, multiplied by the par value of each share). Also Efficient capital marketA market in which new information is very quickly reflected accurately in share Hard capital rationingcapital rationing that under no circumstances can be violated. Human capitalThe unique capabilities and expertise of individuals. Issued share capitalTotal amount of shares that are in issue. Related: outstanding shares. Legal capitalValue at which a company's shares are recorded in its books. Long-term debt/capitalizationIndicator of financial leverage. Shows long-term debt as a proportion of the Market capitalizationThe total dollar value of all outstanding shares. Computed as shares times current Market capitalization rateExpected return on a security. The market-consensus estimate of the appropriate Net working capitalCurrent assets minus current liabilities. Often simply referred to as working capital. Nondiversifiability of human capitalThe difficulty of diversifying one's human capital (the unique Opportunity cost of capitalExpected return that is foregone by investing in a project rather than in Other capitalIn the balance of payments, other capital is a residual category that groups all the capital Outstanding share capitalIssued share capital less the par value of shares that are held in the company's treasury. Pecking-order view (of capital structure)The argument that external financing transaction costs, especially Perfect capital marketA market in which there are never any arbitrage opportunities. Perfect market view (of capital structure)Analysis of a firm's capital structure decision, which shows the Personal tax view (of capital structure)The argument that the difference in personal tax rates between Pie model of capital structureA model of the debt/equity ratio of the firms, graphically depicted in slices of Planned capital expenditure programcapital expenditure program as outlined in the corporate financial plan. Pro forma capital structure analysisA method of analyzing the impact of alternative capital structure Real capitalWealth that can be represented in financial terms, such as savings account balances, financial "Soft" Capital Rationingcapital rationing that under certain circumstances can be violated or even viewed Static theory of capital structureTheory that the firm's capital structure is determined by a trade-off of the Venture capitalAn investment in a start-up business that is perceived to have excellent growth prospects but Weighted average cost of capitalExpected return on a portfolio of all the firm's securities. Used as a hurdle Working capitalDefined as the difference in current assets and current liabilities (excluding short-term Working capital managementThe management of current assets and current liabilities to maximize shortterm liquidity. Working capital ratioWorking capital expressed as a percentage of sales. CAPITALThe money, raised by selling stock or bonds or taking out loans, that you use to start, operate, and grow a business. CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. Activity-based budgetingA method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing. CapitalThe shareholders’ investment in the business; the difference between the assets and liabilities Capital employedThe total of debt and equity, i.e. the total funds in the business. CapitalizeTo make a payment that might otherwise be an expense (in the Profit and Loss account) an asset Capital marketThe market in which investors buy and sell shares of companies, normally associated with a Stock Exchange. Cost of capitalThe costs incurred by an organization to fund all its investments, comprising the risk-adjusted Planning, programming and budgeting system (PPBS)A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres. Return on capital employed (ROCE)The operating profit before interest and tax as a percentage of the total shareholders’ funds plus Weighted average cost of capitalSee cost of capital. Working capitalCurrent assets less current liabilities. Money that revolves in the business as part of the process of buying, making and selling goods and services, particularly in relation to debtors, creditors, inventory and bank. Zero-based budgetingA method of budgeting that ignores historical budgetary allocations and identifies the costs that are necessary to implement agreed strategies. Additional paid-in capitalAmounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with capital in excess of par. Capital in excess parAmounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with additional paid-in capital. Contributed capitalThe amount put into the business by the owners by purchasing stock and by paying more than the par value for the stock (additional paid-in capital or capital in excess of par). capitalA very broad term rooted in economic theory and referring to capital expendituresRefers to investments by a business in long-term capital investment analysisRefers to various techniques and procedures capital recoveryRefers to recouping, or regaining, invested capital over capital stockOwnership shares issued by a business corporation. A business capital structure, or capitalizationTerms that refer to the combination of capitalization of costsWhen a cost is recorded originally as an increase cost of capitalRefers to the interest cost of debt capital used by a business market capitalization, or market capCurrent market value per share of weighted-average cost of capitalWeighted means that the proportions of Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of Capital MarketA market that specializes in trading long-term, relatively high risk Capital StructureThe combination of debt, preferred stock, and common stock used Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |