What does capital budgeting involve?

Capital budgeting is primarily concerned with planning and evaluating long-term investment projects. This process entails analyzing potential projects to determine their feasibility and expected financial return over an extended period. Organizations use various techniques—such as net present value (NPV), internal rate of return (IRR), and payback period—to assess the profitability and risks associated with these investments.

Long-term investments can include expenditures on new machinery, expansion of facilities, or development of new products. Successful capital budgeting ensures that a company allocates its financial resources efficiently to projects that will maximize shareholder value and support future growth.

The other options refer to different aspects of finance that do not fall within the scope of capital budgeting. Evaluating short-term investment opportunities relates more to working capital management, managing day-to-day financial transactions pertains to operational finance, and assessing employee financial literacy is focused on human resources and training initiatives. These areas address specific operational or administrative roles rather than the strategic evaluation of long-term capital investments.