Capital Budgeting is the process by which a company evaluates and selects long-term investment projects that are expected to generate future cash flows. It is a critical financial management tool used to allocate resources efficiently, maximize shareholder value, and ensure sustainable growth. Understanding capital budgeting helps managers and investors make informed decisions about project viability and profitability.

The process of capital budgeting involves identifying potential investment opportunities, estimating expected cash inflows and outflows, analyzing risks, and selecting projects based on financial metrics. Common evaluation techniques include Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Profitability Index. These methods help determine whether a project will generate returns that exceed the cost of capital.

Capital budgeting decisions often involve significant capital expenditures, such as purchasing machinery, expanding operations, launching new products, or entering new markets. The accuracy of cash flow projections, risk assessment, and discount rate selection are crucial factors in ensuring sound investment decisions. Poor capital budgeting can lead to wasted resources, financial losses, and missed growth opportunities.

In India, capital budgeting practices are guided by corporate governance norms and SEBI regulations for listed companies, ensuring transparency, accountability, and accurate financial reporting. Companies are required to disclose major capital expenditure projects and their expected impact on earnings, enabling investors to make informed decisions.

In summary, capital budgeting is the strategic evaluation and selection of long-term investment projects to optimize returns and support business growth. Understanding its methodologies, benefits, and regulatory framework helps companies, investors, and financial professionals make informed, SEBI-compliant decisions that enhance value and manage financial risk effectively.