For some large companies, good performance and standardized management system are very important. In addition, in order to ensure their own interests, shareholders tend to reasonably allocate the company's internal capital structure. What you need to know is that a good capital allocation can even determine the future development of a company.
The following content will include how to evaluate a company's capital allocation and how to complete a good capital allocation.
Capital allocation cannot be completed at the beginning of a company. Many companies have their own development process. At the beginning, the internal capital allocation of companies is often very simple because managers need to use these funds for commercial business and equipment configuration. Therefore, at the beginning, the companies did not even have capital allocation. With the development of companies, when they have a large amount of income and the business is mature, they may distribute capital in a variety of ways.
We use some examples to specify the capital distribution methods. Companies can expand their business or try other industries. Although the method requires a lot of capital investment, if it succeeds, the benefits will be great.
For some stable companies, they may reach the peak in the industry by further improving their core business capabilities.
For some companies that need financing, they may allocate shares to encourage employees to work actively or issue new shares to obtain financial support.
Some companies may be burdened with a large amount of debt at the initial stage of development. When these companies have enough capital, they may pay off their debts to reduce the cost of interest.
For some companies with strong capital, they will even achieve business expansion by acquiring other companies.
There are some key indicators on how to evaluate a company's capital allocation capability.
The shareholders of companies usually use the return on equity of stocks as the growth rate of their own interests. Different companies have different influencing factors for this indicator, such as the company's business type or development history.
Young companies tend to have higher return on equity than companies with a long history.
For the whole company, the return on assets may reflect the distribution of total assets. If a company has a high return on assets, it may be reasonably managed in asset allocation and have strong profitability.
Different companies have different internal cash flow and capital management. Successful companies can usually foresee their future development in advance. As a result, they tend to add other ways to ensure shareholders' benefits early. In addition, they will use all cash flows reasonably to maintain the durability of capital. These companies will formulate the best fund use plan and management system through the shareholders' meeting.
Some companies usually adjust the payment ratio of shares. They know that they need to set a low payment rate at the beginning. Therefore, they can continue to increase the payment ratio in the later stage of the company's development. Some companies that pay high profits for shareholders may encounter the difficulty of insufficient development funds later.
In addition, some companies will buy back previously sold shares to increase the shareholding ratio of other shareholders.
