Capital Rationing
Short definition
Capital rationing is an internal or external ceiling that stops the firm doing every positive-NPV job. The scarce resource may be cash, debt capacity, collateral or management time.
Detailed explanation
Soft rationing is a closed credit or equity market or a covenant. Hard (internal) rationing is a ceiling management sets on purpose (control, dividends, risk limit). In both cases ranking is by PI and package NPV.
If the ceiling is artificial and debt capacity sits unused, the shadow price rises above WACC; the real issue is financial flexibility. If scarcity is real, pick the highest NPV per unit of resource, not jobs just below the hurdle.
Why it matters for the CFO
When Turkish credit standards tighten, the ceiling is quantity not price; without a PI ranking the “most strategic” file eats the cap.
How to read it
Rationing does not raise WACC; it raises a shadow price. Which resource is scarce (cash, collateral, credit) changes the fix.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.