Criteria for major investment decisions

Abstract

This article surveys the quality of capital investment decision-making of leading South African firms. The results, based on 132 responses suggest that, while some firms are advanced, one firm in twenty did not use any of the required capital budgeting techniques for decisions. In addition, the findings provide interesting information on the methods used by firms to assess the impact of inflation on cash flows and the assumptions made with respect to reinvestment rates of cash inflows and, risk and non-financial criteria. The findings suggest that larger firms employ more sophisticated techniques and that high levels of analytical quality are positively correlated with corporate growth rates and profitability.