Capital budgeting methods among Sweden's largest groups of companies. The state of the art and a comparison with earlier studies

Abstract This study presents a general description of the state of the art of capital budgeting methods used by Swedish corporations. It is based on a questionnaire sent to 528 companies selected from 500 of the largest Swedish corporations and some from the O-list of companies. The response rate is 24.4%. The study shows that the public sector companies are most frequent users of discounted cash flow (DCF) methods. The payback method is the most used in all industries; also matters size of company. The use of the net present value method has increased over the years, although the use of DCF methods is generally unchanged. Value-based management models have been introduced in the listed companies. Another conclusion is that tradition is an important factor explaining the choice of capital budgeting method. Large companies within the manufacturing industry use DCF methods more often than other companies. In general, the companies seem unconcerned with the tax consequences of capital budgeting decisions. It would appear as if the public companies have not adopted capital budgeting practices supporting shareholder value increases.