Capital budgeting is the process that businesses use to evaluate potential major investments or expenditures. This includes assessing projects like purchasing new equipment, expanding operations, or launching new products. The goal is to determine which projects will yield the best return on investment over time. To make informed decisions, companies often use various techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. These methods help assess the profitability and risks associated with each investment, ensuring that resources are allocated effectively to maximize financial growth.