Sunday, March 16, 2014

Capital raising & law of diminishing returns

An article that I had published on my one of my passions - Capital efficiency got published in :

I feel humbled to be recognized by Beyond proxy - "The manual of ideas" is a valuable website for all fundamental driven investors.

I hope you enjoy the article and my thoughts. It intrigues  me how little emphasis is paid to if the company can continue to deploy capital at rates of return above the cost of capital. This is often a key factor while companies that continue to grow topline/revenues eventually get strapped for liquidity/bankruptcy.

Combined with the analogy to Heisenberg's uncertainty principle, a lot of investors pay a lot of attention to growth (of EPS, topline) but seldom to capital efficiency. Remember that if you are making a 1000 mile trip, it is not just the speed of the car that matters, but also its fuel efficiency and consequently the time and effort spent on pit stops.

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