Capital Expenditure & Capital expenditure planning

Definition capital expenditure

A capital expenditure is an investment in a long-term asset. In accounting, “long-term asset,” “capital asset,” “fixed asset” and “tangible resource” are synonyms. Fixed assets generally provide the economic power for long-term profitability.

Capital expenditure planning

Capital expenditure planning consists of methodologies and procedures that a company relies on to review its operating needs and assess its long-term business requirements.

An essential part of planning include

  • business need evaluation,
  • economic conditions,
  • implement requirements
  • personnel resource planning

Significance of Capital expenditure planning

  • Planning is a key step in a firm’s decision-making processes, especially those relating to long-term profitability. By reviewing its fixed-asset needs on a regular basis, top management ensures that the firm has adequate resources to thrive and stay ahead of rivals.
  • Capital expenditures are essential to corporate growth because capital expenditures have a major impact on cash flow and can encumber corporate funds for years, they require close scrutiny at all levels within a corporation. Corporations are therefore seeking tools and disciplines to manage capital projects and expenditures so that divisional decisions are aligned with corporate objectives.

Tools for Capital expenditure planning

  • Capital expenditure strategies require technological acumen. To draw up effective capital spending plans, a company relies on tools such as enterprise resource planning software, operating system software and information retrieval or search applications. Other tools include computer-aided design software, defect-tracking programs and Financial Accounting, Analysis and Reporting Software, also called FAARS.