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What is a capital allocation process?

The capital allocation process touches critical financial decisions, including returning cash to shareholders (dividends or share buybacks), debt reduction and mergers, acquisitions, and divestitures.

Who is responsible for capital allocation?

Capital allocation is a process typically owned by the CFO. From the CEO’s perspective, allocating capital is one of the most important strategic financial decisions they make that underpins the organization’s prospects for long-term growth and success. As for the board, directors are stewards of capital deployment.

Is capital allocation a good job?

Capital allocation is perhaps the most important job of a CEO and a CFO. Yet, there is hardly any literature on how to do it well, the pitfalls one runs into, and the systems and processes that need to be improved. To understand more about the topic, I have been chatting with several CFOs, treasurers, and controllers.

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