Why It Matters: Capital Investment Analysis

The master budget for a company generally consists of three major pieces.

The first is the operating budget that builds off sales projections and eventually results in a complete production budget.

The second piece is the financial budget that is a representation of the financial results that the company could expect if the budget is met.

The final piece in the master budgeting process is the Capital Budget, also called the Capital Expenditures Budget or the Capital Investment Budget. Often, companies have an entire department dedicated to capital planning.

A flowchart titled “Types of Budgets”. The capital expenditures budget is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the financial budget. There are also arrows pointing from the cost of goods sold budget and the SG&A budget to the cash budget.