New Mauboussin Report: Capital Allocation Outside the U.S. – Evidence, Analytical Models, and Assessment Guidance

Capital Allocation Outside the U.S. – Evidence, Analytical Models, and Assessment Guidance

Credit Suisse’s Global Financial Strategies team has published a new report, “Capital Allocation Outside the U.S.” It includes new charts and examples and reflects the latest academic research.

  • Capital allocation is a senior management team’s most fundamental responsibility. The problem is that many CEOs don’t know how to allocate capital effectively. The objective of capital allocation is to build long-term value per share.
  • In this report we examine the sources and uses of capital for Japan, Europe, Asia/Pacific excluding Japan, and Global Emerging Markets. This extends our analysis beyond the United States, which we discussed in a prior report.
  • Countries or regions with a high return on invested capital (ROIC) can fund a substantial percentage of investment internally whereas those with low ROICs must rely more on external financing.
  • Capital allocation is also determined by the largest sectors in a country’s or a region’s economy, the stage of economic development, cultural norms, and regulations.
  • We provide a framework for assessing a company’s capital allocation skills, which includes examining past behaviors, understanding incentives, and considering the five principles of capital allocation.

See here for a collection of links to other Mauboussin papers.

mmcapall

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