The process of planning and managing a firm’s long-term assets. The financial manager tries to identify investment opportunities
Capital Budgeting
and assess the potential risks and benefits associated with each opportunity. The process of planning and managing a firm’s long-term assets is commonly referred to as capital budgeting.
Capital budgeting involves analyzing potential investments to determine if they align with the firm’s overall goals and financial objectives. The financial manager must consider factors such as the cost of the investment, the expected return on investment, and the risk associated with the investment.
Once potential investments have been identified and evaluated, the financial manager must decide which investments to pursue and develop a plan for funding them. This may involve raising capital through equity or debt financing, or utilizing retained earnings from previous periods.
As investments are made, the financial manager must continually monitor and reassess the performance of these assets. This may involve analyzing financial statements and other performance metrics to determine if the investment is meeting its expected outcomes and adjusting the investment strategy as needed.
Overall, the process of planning and managing long-term assets is critical to the success of any firm. By carefully evaluating investment opportunities and strategically allocating capital, a firm can maximize its return on investment and achieve its financial goals.
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