Question

1. In finance, how does short-term financial planning differ from long-term or capital budgeting?

Answer 1

1. Companies develop short-term financial plans to meet budget and investment goals within one fiscal year whereas capital budgeting decisions are long term in nature and create an effect over multiple years say 5 or even more depending on how big project is under consideration.

2. Short term plans have a higher degree of certainty compared to long-term plans because of long period involved leading to a higher degree of uncertainty.

3. Short-term plans can be amended as financial and investment goals change. Long term decisions are often difficult to amend and come with sunk cost which is often irreversible.