Capital budgeting is essential for several reasons: 1. Long-term Impact: Decisions made in capital budgeting have long-term implications on a company's financial health and operational capabilities. 2. Resource Allocation: Effective capital budgeting ensures optimal allocation of limited resources, thereby maximizing returns. 3. Risk Management: It helps in identifying and mitigating risks associated with large-scale investments. 4. Strategic Planning: Helps align investment decisions with the company's strategic goals.