How To Write a Capital Budgeting Research Paper: Ultimate Guide
Capital budgeting is an extremely important part of running any business. It’s how you plan to fund the expansion or maintenance of your company’s assets — things like machinery, computer systems, factories, and so on. Capital budgeting is especially important for small businesses that have limited cash flow and time to plan their finances. Even for larger companies with more time, it’s still a necessary evil. That’s because if you don’t have a solid plan in place for financing new investments, you might not be able to keep up with the operational expenses of keeping your company running smoothly. To ensure you have all the information you need to write a successful capital budgeting research paper and understand what it entails, follow this step-by-step guide.
What is a capital budgeting research paper?
A capital budgeting research paper is a type of business planning paper that you’ll use to help you plan and justify your company’s future investments. A typical capital budgeting paper is divided into four main parts:
Why Is Capital Budgeting Important?
As a business owner, your company needs assets to function. Equipment, factories, trucks, computers — things like these are assets that help your company run smoothly. If you don’t know how much to upgrade them each year, you might run out of cash quickly. That’s especially a concern for small businesses with limited cash flow and time to plan their finances.
To ensure you have all the information you need to write a successful capital budgeting paper and understand what it entails, follow this step-by-step guide. First, why is it important to know how much to budget each year for new investments? Simply put, it’s how you’ll fund the expansion or maintenance of your company’s assets — things like machinery, computer systems, factories, and so on.
What should be included in a capital budgeting research paper?
If you’re planning your first capital budgeting paper, you’ll want to make sure you cover all of the necessary topics. You’ll want to include:
- Your paper’s purpose should be to justify and explain your company’s investments.
- The main advantages of making investments.
- The costs of making each of the investments.
- The anticipated rate of return on each investment.
- An explanation of how the investments fit into your desired growth trajectory.
- A detailed financial forecast of your company’s growth, including the impact of new investments.
What Does a Capital Budgeting Research Paper Typically Include?
You’ll start your capital budgeting research paper by explaining the paper’s purpose. Explain why you’re looking to make new investments in your company’s assets and how it will benefit your company’s growth. Next, you’ll want to explain why your company needs to make those investments and grow. Explain why your company needs to expand its products and services, for example, or purchase new equipment. These two sections of your paper are extremely important because they help you justify your investments to your stakeholders. You’ll also want to make it clear that the paper is not a profit-and-loss report.
Step 1: Identify the types of investments you’ll make
The first step in figuring out the types of investments you’ll make is to consider your company’s assets and how they can be expanded. Think about what assets your company currently uses and how they might be expanded or replaced with newer assets. Once you’ve identified the assets you want to expand, you can start to consider the types of investments you might make.
New facilities. This includes things like building renovations, new offices, and new production facilities.
New technology. This includes things like new machinery, computer systems, and prototypes.
Acquisitions. This includes things like buying other companies or selling your own assets to buy another company.
Debt financing. This includes things like borrowing money from banks or financial institutions to fund your future investments.
Step 2: Calculate the annual net cash requirement for new investments
Next, you’ll need to calculate the annual net cash requirement for your company’s new investments. This will give you an idea of how much cash you’ll need to provide to the company each year. You can calculate the annual net cash requirement for your company’s net income plus interest and taxes. Once you have this, you can subtract the amount of cash your company currently has in its bank accounts. Once you’ve calculated the annual net cash requirement, you can use it to help you decide which new investments to make.
Step 3: Estimate the value of each investment you’ll make in your company’s future
Last, estimate the value of each investment you’ll make in your company’s future. While your company’s cash flow will cover the cost of the investment, you’ll need to contribute some of your own money to buy the company’s shares. You’ll also need to estimate how much you’ll put down as a down payment on each investment. This will help you decide which investments you want to make, which you want to skip, and how much you want to put down.
Step 4: Sum up and write your paper conclusion
At the end of your paper, you’ll want to make sure you summarize all the key content you’ve included in your paper. You can also include your conclusions. In conclusion, you’ll want to summarize what you learned and offer advice to other business owners on how they can leverage capital budgeting to grow their companies. Now that you know what a capital budgeting research paper is, let’s take a look at how you can write a successful one.
The key takeaway of the capital budgeting research paper?
Before you begin your research on how to write a capital budgeting research paper, make sure you have all the information you need, including the start-up information, investment information, and the net cash flow of your company.
Research the cost and value of each investment you’ll make in your company’s future. You’ll need to estimate the cost of each asset, the value of each piece of equipment, the annual operating cost of each factory, and so on.
Make sure to consider the depreciation rate on your assets, the interest rate you’ll have to pay on your loans, how much it’ll cost to keep your employees on their payroll, and how much it’ll cost for each investment.
You’ll want to measure your company’s value at the end of each year and see how much you’ll need to finance the company’s future growth.
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