the ghost train
THE FINANCE GHOST: Capital allocation matters
The beauty of a strong balance sheet is that there’s no rush to sell underperforming assets
The word “profitable” works far too hard out there. Merely being profitable isn’t a logical financial goal. Just think about the days when losses at SAA were all over the headlines. The goal was for the airline to be profitable, but that doesn’t consider the fortune that was tied up in fixed assets.
Put differently, would you invest R1m in something that pays you R100 a year in dividends? No, of course you wouldn’t. This is why profitability cannot be the most important metric for a company. If you’re going to pick one metric as the apex predator of finance, then it needs to be a return on capital metric of some kind...
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