Investments are important because:
i) They influence company’s size
ii) Influence growth
iii) Influence company’s risks
In addition, this investment decision making process also known as capital budgeting, involves the decision to invest the company’s current funds in viable ventures whose returns will be realised for long term periods in future. Capital budgeting as financial planning is characterised by the following:
1. Decisions of this nature are long term i.e. extending beyond one year in which case they are also expected to generate returns of long term in nature.
2. Investment is usually heavy (heavy capital injection) and as such has to be properly planned.
3. These decisions are irreversible and any mistake may cause the company heavy losses.