Capital Budgeting Practices in Nepalese Manufacturing Companies

Abstract

Capital budgeting is the process of planning and controlling the strategic (long term) and tactical (short term) expenditure for expansion and contraction of investment in operating (fixed) assets. Capital budgeting decisions are involved with the use of cash now and get back the investment over a period longer than a year. Evaluating such decisions requires determining the investment and its resulting cash flows. Investments provide future cash flows through additional revenues and costs, and through cost saving critical to capital budgeting is that most, if not all, of the numbers used in the analyses are estimates. Capital investment decisions play vital role for the achievement of strategic plan of organizations. The main objective of this study is to investigate the capital budgeting practice of manufacturing companies in Nepal. To achieve this objective, primary data was collected using self-administered questionnaire from ten manufacturing companies. The finding of the study showed that the Nepalese manufacturing companies have been practicing capital budgeting for the long term investment project. Most of the Nepalese manufacturing companies are making investment plan through executive decision and some of the companies are practicing both financial analysis and executive decision. Most of the Nepalese manufacturing companies are facing time consuming difficulty in using capital budgeting followed by unavailability of data and lack of manpower. Capital budgeting in Nepalese manufacturing companies is still evolving and will continue to do so in the future. So far, they are trying to adopt various tools and techniques to cope with the future expected opportunities and challenges to be faced due to the accession of globalization.

Key Words: Cash Forecasting, Capital Investment, and Project Identification, Strategic Planning.