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Home > QFINANCE Dictionary > Definition of capital rationing

Definition of

capital rationing

  • 1.

    firm's limiting of new investment the restriction of new investment by a company because of a shortfall in its capital budget

  • 2.

    imposition of limit on capital expenditure a restriction on an organization's ability to invest capital funds, caused by an internal budget ceiling being imposed by management (soft capital rationing), or by external limitations being applied to the company, as when additional borrowed funds cannot be obtained (hard capital rationing)

Recommended Further Reading (Term count)
  • How to Set the Hurdle Rate for Capital Investments
    by Jon Tucker
    Chief financial officers are charged with the task of maximizing shareholder wealth. They do this by pursuing two key goals: Maximizing the stream of future cash flows, and minimizing the company’s cost of capital. Cognizant of the separation theorem, we tend to separate one goal from the other. However, both are of strategic importance—a healthy stream of cash flows can actually destroy value (and hence reduce shareholder wealth) if the company...
capital rationing - Related Articles

  • How to Set the Hurdle Rate for Capital Investments

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    by the highest margin. This may be necessary for most companies in the real world, anyway, in the presence of limited investment funds, and capital rationing.
    By Jon Tucker

  • Optimizing the Capital Structure: Finding the Right Balance between Debt and Equity

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    markets, no interest rate differentials, no agency costs (rationality), and no transaction costs. These assumptions are, in fact, the main drivers of capital structure and gave rise to the trade-off theory of leverage.
    By Meziane Lasfer

  • Understanding Equity Capital in Small and Medium-Sized Enterprises

    Best Practice

    Entrepreneurs may require both debt and equity financing, and often start their firms by financing growth through equity. Equity capital is money invested in the venture with no legal obligation on the entrepreneur to repay the principal amount or to pay interest on it; however, it requires sharing the ownership and profits with the funding source, and possibly also paying dividends to equity investors.
    By Siri Terjesen

More

Definitions of ’capital rationing’ and meaning of ’capital rationing’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’capital rationing’ and other financial terms with our online QFINANCE Financial Dictionary.

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