Capital Budgeting

Below is the list of words and acronyms used in our paper on capital budgeting.

“How Managers Frame Capital Budgeting in Investor Communications,” Robert
Battalio, Tim Loughran, and Bill McDonald, Journal of Corporate Finance, forthcoming.

ABSTRACT

We create a lexicon of 46 capital budgeting terms and document managers’ use of capital budgeting language in earnings conference calls from 2010 to 2023. Managers of large firms generating more positive financial performance tend to talk more about capital budgeting. Managers use the non-GAAP term EBITDA significantly more often when a company’s net income is negative. Companies that mention payback rather than net present value are smaller in size, have lower R&D intensity, and are younger. Finally, we document a statistically significant and negative relation between capital budgeting language usage during the call and next year’s Tobin’s Q.

WORDLIST:

Cash flow(s) (CF)
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Free cash flow(s) (FCF)
Operating income
Operating profit
Capital spend(ing)
Capital investment
Return on investment (ROI)
Earnings before interest and taxes (EBIT)
Return on equity (ROE)
Enterprise value (EV)
Return on invested capital (ROIC)
Payback or Pay Back or Payback period
Operating income before depreciation and amortization (OIBDA)
(Net)Present value(s) (NPV)
Return on capital (ROC)
Discount rate
Capital budget
Return on assets (ROA)
Internal rate (of return(s)) (IRR)
Earnings before interest, taxes, depreciation, amortization, and rental expense (EBITDAR)
Earnings before interest, taxes, depreciation, amortization, and exploration expense (EBITDAX)
Net asset value (NAV)
Weighted average cost
Hurdle rate
Price to earnings (PE)
Discounted cash flow(s) (DCF)
Economic value added (EVA)
Weighted average cost of capital (WACC)
Opportunity cost
Economic profit
Earnings before interest, taxes, and amortization (EBITA)
Sensitivity analysis
Risk analysis
Cash flow return on investment (CFROI)
Net operating profit after taxes (NOPAT)
Real options
Value at risk
Simulation analysis
Capital asset pricing model (CAPM)
Modified internal rate (of return(s)) (MIRR)
Capital rationing
Profitability index
Accounting rate of return
Earnings multiple approach
Net operating profit less adjusted taxes (NOPLAT)