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Capital rationing has to do with the acquisition of new investments. More to the point, capital rationing is all about the acquisition of new investments based on such factors as the recent performance of other capital investments, the amount of disposable resources that are free to acquire a new asset, and the anticipated performance of the asset. In short, capital rationing is a strategy employed by companies to make investments based on the current relevant circumstances of the company.

Generally, capital rationing is utilized as a means of putting a limit or cap on the portion of the existing budget that may be used in acquiring a new asset. As part of this process, the investor will also want to consider the use of a high cost of capital when thinking in terms of the outcome of the act of acquiring a particular asset. Obviously, any responsible company will choose to employ strategies that support the productive use of disposable funds built within a capital budget. At the same time, it is important to understand what benefits can reasonably be expected from owing the asset in question.

Since capital rationing is all about setting criteria that any investment opportunity must meet before the company will seriously entertain the purchase, many businesses choose this strategy as their guiding process for any acquisitions. Using the basic principles of the technique, a company can develop a list of standards that must be addressed before any capital purchase. If the standards are drafted in a manner that accurately reflects the current condition of the company, then there is a good chance the right types of investments will be considered.

Some of the more important factors to consider as part of a productive capital rationing approach are the financial condition of the company, the long and short term goals of the business, and proper attention to daily operations. One of the benefits of capital rationing is that the approach helps to ensure that funds for basic operations are not diverted in order to take advantage of a so-called "can't fail" opportunity, which helps to maintain the stability of the business.

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Q: What is the process of capital rationing?
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Related questions

What does capital rationing assumes?

a limited amont of capital is available


What is hard capital rationing?

A capital budget to which a company must adhere. A company may engage in hard capital rationing if it has limited resources and has allocated them in such a way as to allow little or no room for error. A project that goes over budget under hard capital rationing may land the company in trouble.


How are projects selected under capital rationing?

on the basis of projects having higher npv


What is capital rationing?

The Act of putting restrictions on investing new capital requirements by making the availability dearer at the high rates of interest/discounting.


What was the process of controlling distribution of scarce goods during wartime?

Rationing


When hard capital rationing exist project may be accurately evaluated by use of what?

Profitability Index


What is meant by 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.


Rationing?

the act of rationing


Where did rationing happen?

Rationing happpend in Britain


Where can you find information about World War 2 rationing?

To find information on rationing you can go to www.worldwar2.org.uk/rationing/89687/homework/school.htm To find information on rationing you can go to www.worldwar2.org.uk/rationing/89687/homework/school.htm To find information on rationing you can go to www.worldwar2.org.uk/rationing/89687/homework/school.htm


Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?

Capital rationing


Did rationing affect children?

Rationing affected everyone.