Capital Allocation in a Slow-Growth World

In a world of structurally lower growth rates, capital allocation decisions are particularly vital to generating value for long-term shareholders. In this chapter, I’ll demonstrate the practical implications of the lower economic growth and other megatrends described in Chapter 1 and their effects on capital allocation. I’ll also examine the importance of developing a sound process in making capital allocation decisions.

Let’s look at two companies that grow revenues at nominal GDP. As displayed in Table 2.1, Firm A grows revenues at a level consistent with nominal GDP during the 1983–2000 period, and Firm B grows at a rate consistent with nominal GDP in the 2001–2018 period.


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