Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value

by GIROUX

Seize the competitive edge through intelligent, differentiated capital allocation The intelligent deployment of capital is one of the most effective ways to create long-term value. But despite this, there are very few capital allocation experts on the boards of the largest publicly traded companies, and academic research consistently finds that most firms deploy capital sub-optimally. Capital Allocation aims to educate senior leaders, board members, investors, students, and anyone interested in business on this important topic. Until now very little has been written on capital allocation outside of academia, even though the strategic deployment of excess capital is an increasingly significant source of competitive advantage for many companies. David Giroux, Chief Investment Officer for Equities and Multi-Asset and Head of Investment Strategy at T. Rowe Price, covers the entire gamut of capital allocation issues, including optimal capital structure, capital allocation alternatives, mergers & acquisitions, and special situations. Capital Allocation walks you through this critical topic from beginning to end, Giroux uses academic research, personal experience, and uncomplicated mathematics to reveal approaches and actions that create long-term value. He provides case studies from Kodak, Comcast, Thermo Fisher Scientific, Danaher, General Electric, Microsoft, and others showing how capital allocation has―and hasn’t―worked in real-life situations. And he shows how to use capital allocation to head off possible activist investors. Capital Allocation offers everything you need to know for deploying capital wisely to outperform your competitors over the long term.

Genres: Finance, Business, Nonfiction

480 pages, Hardcover

Published November 16, 2021

Reviews

[Lukas Wolden · Rating 4 out of 5]

Very enjoyable read. I enjoyed the many examples provided. And I especially enjoyed the bashing of the short-term focus that so many management team seem to have embraced.
The example provided on Newell Brands is excellent is showing the ridiculousness of adjusting extraordinary charges like restructuring when those charges happen every year. To me, that is an attempt by management to trick investors into believing that they are more profitable than they actually are. As is proven by him showing their FCF conversion on those adjusted earnings.

I also agree with his view of treating employees as partners. Not only do I view treating employees with hostility as morally wrong, it is also ridiculously stupid. Employees are often able and willing to improve operations if granted the possibility. They also possess talent and knowledge that is incredibly valuable to a business. And abusing them is not a good way to achieve long term success.

I do dislike his focus on share price. Often he provides a solution to any short term decline in share price as a result of initiatives taken to improve operations long term that can make earnings decline in the short term.
Although I understand why this can be useful, not just for job safety for management if they lack control. I still believe it is a dumb thing to focus on and incentivises short term thinking. Which often harms business sustainability.
Many shareholders are seemingly incapable of thinking more than 1 quarter ahead and I believe it is foolish to pander to that base.

[Tab Williams · Rating 4 out of 5]

I enjoyed this book, but it wasn't life changing. Giroux makes some wonderful points on capital allocation, but nothing is new. That said, he does an excellent job of aggregating thoughts into a cohesive framework, which I think is useful. There are lots of good frameworks and models that I will put to use. This would have been more impactful for someone starting out there career, but it is a good reminder and summary and a book I am sure to revisit many times over the year.

[Terry]

Chapter on GE is an eye opener. Always thought GE Credit with leverage was their downfall.

[Kartikeya Agarwal · Rating 5 out of 5]

THE book on Capital Allocation. A must read!