Share story

Q: What does a company’s “capital allocation” refer to?

A: It’s how the company spends its money, doing such things as buying back some of its shares on the open market, paying shareholders a dividend, paying off debt, buying another company, investing the money, or reinvesting it in the firm’s core business (perhaps building a new factory or hiring more employees).

Companies should spend effectively, though — buying back overpriced shares or paying too much for an acquisition, for example, is wasteful and hurts shareholders.