Capital Allocation: The basis of the flow of money

 



Strongly recommend the book The Outsiders : Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike


If the company wants to be successful in the long run the, CEO has to do two things well.

A.Optimize the profits of the company

b.Invest/Allocate the profits well


There are only three ways the companies can raise money.

a. Internal Accruals

b. Equity

c. Debt


Only Six things you can do with capital well.

A. Invest in the capacity expansion-organic growth

B.  M&A

C. Pay back the debt

D. Pay as dividends

E. Repurchase of the share- BuyBack

F. Investing in strategic partnerships or establishing cross-shareholdings.

Two things to evaluate a CEO’s greatness:

1. The compound annual return to shareholders during his or her tenure and 

2. The return over the same period for peer companies and for the broader market (usually measured by the S&P 500).

What counts in the long run is the increase in per-share value, not overall growth or size.

Many firms don't do this right. The froth in the markets is insanely high. If the CEO gets this thing right he/she can outperform Jack Welch the trademark of the executive.


Refer Disclaimer.


Connect with us research@sarthakreturns.com

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