The app for independent voices
Many investors think of capital allocation as a finance problem. It's not, it's a strategic problem. And it's the single most important strategic decision a CEO makes.
Every dollar of Free Cash Flow has five possible destinations:
Reinvest back into the business.
Acquire another business.
Pay down debt.
Buy back shares.
Issue a dividend.
The order in which a CEO ranks those options tells you about how they think. The best allocators treat every dollar like it's the last one they'll deploy, while the worst allocators treat it like someone elses money.
"We joke around that one of the core competencies at HEICO is we don't mess things up. We may not invent the new iPhone, but we're not going to mess things up and we're not going to go backwards." -Eric Mendelson, Co-CEO of HEICO.