Capital Investments and Capital Allocation

The previous learning module described issuers’ short-term investments and financing activities. In this module and the next, we turn our attention to issuers’ long-term investment and financing activities. First, we explore the various forms of capital investment and their purposes. We then discuss the investment decision-making process and compare analytical approaches employed in that process. In the third lesson, we describe principles of capital allocation and common pitfalls. While the goals of both capital allocation and estimating expected investment returns are to select the best choice among investment alternatives, a firm’s decision today may influence future investment decisions, resulting in so-called real options, which are discussed in the final lesson.