CHAPTER 2

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.

TABLE 2.1

Same ...

Get Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.