Depicting the significance of ethics conducted by companies while considering capital budgeting:
The use of ethics is mainly essential for companies while contemplating the capital budgeting. Budgeting is mainly associated with allocation of the company’s overall financial resources in different segments of the business. This mainly needs ethical consideration, as biased personal could not effectively comprehend all the relevant activities of the company. Certain attributes should be maintained for accommodating ethical capital budgeting in the company. The relevant factors are honest books, responsibility, decency, and conflict of interest, which effectively help the company in maintaining ethical capital budgeting in its vicinity. Andor, Mohanty & Toth (2015) mentioned that capital budgeting mainly requires unbiased decisions, which could help in improving viability of the business and make adequate resource allocation.
Capital budgeting mainly helps companies to understand future cash inflows, evacuate new investment projects, and monitor & control expenditure. The significant variations of capital budgeting needs to be complimented with adequate ethical considerations or else company’s future growth and prospects will not be achieved. For example if the company uses unethical biasness in making adequate decision for a certain project and takes wrong valuation of the future cash inflows. This might reduce cash generation capacity and increase cash outflow. This could eventually hamper company’s growth and reduce its ability to maintain profitability. Thus, it is essential for companies to maintain ethics within its capital budgeting system. Rossi (2015) stated that with the use of ethical budgeting system, companies are mainly able to improve its cash generation capacity and reduce its overall expenditure.
Andor, G., Mohanty, S. K., & Toth, T. (2015). Capital budgeting practices: a survey of Central and Eastern European firms. Emerging Markets Review, 23, 148-172.
Rossi, M. (2015). The use of capital budgeting techniques: an outlook from Italy. International Journal of Management Practice, 8(1), 43-56.