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Capital budgeting is a process that is used to determine whether or not certain projects are worthwhile investments. Another term for capital budgeting is called an "Investment appraisal." Just as you would put a certain value on a pair of socks or a car, you should put a value on an investment. If, in your business, you are responsible for the capital budgeting decisions you will need to assess whether or not the costs of an investment exceed or fall short of your earning goals. Before you spend your time and money on a business investment, you will want to use capital budgeting to make sure that your decision is going to make you and the company money.
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