Groundlearn / Glossary / Capital budgeting
Capital budgeting
A CFA term, defined in plain English with the distinction examiners test.
What it means
The process of deciding which long-term investments a company should make.
The exam angle
Use incremental after-tax cash flows. Sunk costs are excluded; opportunity costs and externalities are included.
Where it appears in the syllabus
- Corporate FinanceCFA Level I · exam weight 6–9% · Governance, working capital, capital allocation, capital structure.
Related terms
- Agency problemThe conflict that arises when managers act in their own interest rather than that of the owners who employ them.
- Business riskThe uncertainty in operating income arising from the nature of the business itself, before any financing decision.
- Capital structureThe mix of debt and equity a company uses to fund itself.
- Cash conversion cycleThe time between paying for inventory and collecting cash from the customer.
- Corporate governanceThe system of controls by which a company is directed and held accountable to its stakeholders.
- Cost of equityThe return equity holders require for bearing the residual risk of the business.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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