Abstract: Capital investment decisions play vital role for the achievement of strategic plan of organizations. The main objective of this study is to investigate the capital budgeting practice of business organizations in Ethiopia with especial reference to strategic planning, project idea generation and cash forecasting. To achieve this objective, primary data was collected using self administered questionnaire from 109 large private and public owned business organizations found in Addis Ababa, Ethiopia. The finding of the study showed that the majority of the firms try to link capital investment projects to their strategic plan. Top managers and board of directors are the main sources of project idea and most organizations do not make cash forecasting properly. For instance, they will not incorporate working capital, inflation and tax effect of depreciation in to account while forecasting cash flows.