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Capital budgeting refers to the process by which companies evaluate long-term investment decisions, typically involving substantial expenditures. These decisions often require significant financial resources and have an impact on a company's future cash flows and profitability. Capital budgeting involves analyzing potential investments, assessing their risks and returns, and determining whether they align with the company's strategic goals and objectives. It requires careful consideration of factors such as the initial investment cost, projected cash flows, potential risks, and the opportunity cost of alternative investments. Effective capital budgeting can help companies make informed decisions about where to allocate resources and ensure that their investments generate value for stakeholders over the long term.