Capital Allocation

November 05, 2025

Capital Allocation

Consilient Observer

Capital Allocation

November 05, 2025

Results, Analysis, and Assessment

Capital allocation is an essential part of creating value and is one of management's prime responsibilities. Not all senior executives know how to allocate capital effectively.
This report is an update of one from December 2022. We extend most of the analysis back to 1970, update the data through 2024, and discuss results for the first half of 2025 where practicable.
These data include capital allocation, return on invested capital, and other relevant financial results.
We review capital allocation alternatives in detail, including a novel discussion of intangible investments, and offer a guide for thinking about the prospects for value creation.
We finish with a framework for assessing a company's capital allocation skills, which includes looking at past behavior, calculating return on invested capital, an evaluation of incentives, and five principles of effective capital allocation.

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DEFINITIONS

Return On Invested Capital (ROIC) represents the rate of return a company makes on the cash it invests in its business.

The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.

IMPORTANT INFORMATION

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