Current Capital Investment Practices

This paper presents the results of a mail survey of the capital investment practices of the U.S.-based companies in the Standard & Poor's Industrial Index. Unlike earlier studies, which focus on the use of project evaluation and risk analysis tools, this study considers the entire investment decision-making process, from strategic analysis through post-auditing operating performance. Analysis of the responses suggests that most responding companies use a fairly sophisticated capital investment process. They make strategic analysis a cornerstone of their capital investment process, develop quantitative minimum required rate of return and maximum acceptable risk goals, forecast investment returns on a cash basis, use discounted cash flow evaluation measures, control the implementation process, and conduct post-audits of operating performance regularly. The respondents appear less sophisticated in their treatment of risk. Only half use quantitative risk analysis and risk-adjustment techniques.