capital-allocation

Vocabulary Word

Definition

'Capital allocation' is like creating a budget for a company. It is deciding how a company's money should be used, whether it be investing in new business ventures, buying shares, or saving the money for future use.

Examples in Different Contexts

For investment strategy, 'capital allocation' determines the portfolio distribution. An investment advisor might suggest, 'A wise capital allocation balances risk and return, diversifying investments across multiple asset classes.'

Practice Scenarios

Finance

Scenario:

The company's performance last quarter outperformed our projections. We now have surplus earnings to assign.

Response:

How about we use capital allocation strategy to reinvest surplus earnings into business expansion?

Investment

Scenario:

The capital markets are fluctuating. Diversification across various sectors should minimize risk.

Response:

To safeguard against market fluctuations, I propose a diversified capital allocation strategy focusing on tech, healthcare, and renewables.