Capital Planning Definitions

Asset. A physical or intangible item of value to an organization or individual.

Balance Sheet. A financial statement reflecting the recorded values of all assets, liabilities, and owner's equity at a point in time.

Capital. The funds committed to an enterprise in the form of ownership equity and long-term financing.

Capital Budget. A selected group of investment projects approved in principle for implementation, pending individual approval, and related closely to a company's business strategies.

Capital Planning. Capital Planning is a systematic approach to managing the risks and returns of IT investments for a given mission. (CIO Council Committees on Capital Planning)

Cash flow. The positive (inflow) or negative (outflow) movements of cash caused by an activity over a specific period of time.

Cash flow analysis. An economic method of analysis that employs the positive (inflow) and negative (outflow) movements of cash caused by an activity to determine the relative desirability of the activity; usually involves discounted cash flow methodology.

Cash flow statement. A financial statement listing the cash impact of the activities of a business over a specified period of time separating the cash flows into the area of operations, investments, and financing.

Current asset. Any asset on the balance sheet with a short-term expectation of being turned into cash, such as receivables and inventories; usually considered as having less than a year before being converted to cash.

Current Liability. Any liability on the balance sheet with a short-term maturity, usually payable within one year, such as accounts payable.

Current ratio. A common measure of liquidity that relates the sum of current assets to the sum of current liabilities.

Discount rate. The earnings rate used in calculating the present value of future cash flows using the discounting process.

Earnings (income, net income, profit, and net profit). The differences between all recorded revenues and all related costs and expenses for a specific period, using generally accepted accounting principles.

Economic analysis. The development of the economic impact of a business decision that determines the actual trade-off between economic costs and benefits independent of accounting conventions.

Expense. A periodic offset against revenue recognized under generally accepted accounting principles, representing either a direct cash outlay or an allocation or accrual of past and future outlays.

Financial analysis. The process of determining and weighing the financial impact of business decisions.

Fixed assets. Any asset on the balance sheet considered to have a life or usefulness for a business in excess of one year, such as land, buildings, and machinery. (Cf. current assets.)

Funds. A general term denoting means of payment and often equated with cash.

Income. The difference between the revenues and the matching costs and expenses for a specified period. (Cf. earnings.)

Income statement (operating statement, profit and loss statement). A financial statement reporting the periodic revenues and matching costs and expenses for a specified period, and deriving the income for the period.

Internal rate of return (IRR). The discount rate that equates the cash inflows and outflows of an investment project, resulting in a net present value of zero. (Cf. rate of return, yield.)

IT investment. An expenditure of money and/or resources for IT or IT-related products and services involving managerial, technical, and organizational risks for which there are expected benefits to the organization's performance. These benefits are defined as improvements either in efficiency of operations or effectiveness in services.

Investment. The commitment of funds for purposes of obtaining an economic return over a period of time, usually in the form of periodic cash flows and/or terminal value.

Present value. The value today of a future sum or series of sums of money, calculated by discounting the future sums with an appropriated rate.

Return on assets (ROA). The relationship of annual after tax earnings to total assets (average or ending balance), used as a measure of the productivity of an organization's assets.

Return on investment (ROI). The relationship of annual after tax earnings to the book value (average or ending balance) of the asset, business, or profit center generating these earnings. Used as a measure of the productivity of the investment. (Cf. return on assets.)

Working capital (net working capital). The difference between current assets and current liabilities as recorded on the balance sheet, representing the amount of operating funds that are financed by the organization's capital structure.

http://www.ocio.usda.gov/cpic/capplan_definitions.html
Last Modified: 05/17/2007