capital rationing


capital rationing
The situation that arises when managers have insufficient money to invest in all projects with a positive net present value. The term soft capital rationing is used of situations in which a company sets its own limits on the amount of money available for investment in projects; if there are external constraints on money available for investments, the term hard capital rationing is used. Whenever capital rationing exists, managers need to rank potential investments so that net present value can be maximised (see profitability index).

Accounting dictionary. 2014.

Look at other dictionaries:

  • Capital rationing — Placing one or more limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital budget. The New York Times Financial Glossary * *… …   Financial and business terms

  • capital rationing — Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it. Bloomberg Financial Dictionary * * * capital rationing ˌcapital… …   Financial and business terms

  • capital rationing — The situation that arises when managers have insufficient money to invest in all projects with a positive net present value The term soft capital rationing is used of situations in which a company sets its own limits on the amount of money… …   Big dictionary of business and management

  • Capital Rationing — The act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the… …   Investment dictionary

  • capital rationing — decisions concerning allocation of limited financial resources at the company s disposal …   English contemporary dictionary

  • Hard capital rationing — Capital rationing that under no circumstances can be violated. The New York Times Financial Glossary …   Financial and business terms

  • Soft Capital Rationing — Capital rationing that under certain circumstances can be violated or even viewed as made up of targets rather than absolute constraints. The New York Times Financial Glossary …   Financial and business terms

  • hard capital rationing — A capital budget that under no circumstances can be violated. Bloomberg Financial Dictionary …   Financial and business terms

  • soft capital rationing — Constraints on spending that under certain circumstances can be violated or even viewed as constituting targets rather than absolute limits. Bloomberg Financial Dictionary …   Financial and business terms

  • soft capital rationing — Constraints on spending that under certain circumstances can be violated or even viewed as constituting targets rather than absolute limits. Bloomberg Financial Dictionary …   Financial and business terms