Executive Summary
This report examines capital allocation as the driver of long-term shareholder value, arguing that how companies deploy capital matters more than short-term earnings metrics or headline growth. It shows that, over time, firms that consistently reinvest free cash flow into their core businesses tend to outperform, with reinvestment displaying a clearer and more durable link to wealth creation than M&As, dividends or buybacks. The analysis highlights that M&A, while sometimes necessary, destroys value in the majority of cases when pursued to chase growth rather than deployed opportunistically. The report situates these findings within the current market context, where strong equity performance and elevated risk appetite coexist with a historic surge in AI-related capital expenditure. It argues that the coming years will be a test of capital discipline, as companies must convert unprecedented investment in AI infrastructure into sustainable returns. Overall, the report concludes that efficient capital allocation, especially disciplined reinvestment supported by strong returns on capital, is the “mother of all metrics” that ultimately determines corporate outcomes and broader equity market trajectories.
