Capital Allocation

A process of how businesses divide their financial resources and other sources of capital to different processes, people and projects. Overall, it is management's goal to optimize capital allocation so that it generates as much wealth as possible for its shareholders.

The process behind making a capital allocation decision is complex, as management virtually has an unlimited number of options to consider.

For example, if a company ends up with a larger than expected windfall at the end of the year, management needs to decide whether to use the extra funds to buy back stock, issue a special dividend, purchase new equipment or increase the research and development budget. In one way or another, each one of these actions will likely benefit the shareholder, but the difficult part is in determining how much money should be allocated to each action in order to yield the most benefit.


Investment dictionary. . 2012.

Look at other dictionaries:

  • capital allocation — The allocation of investment capital to particular units within an organization on the basis of possible losses, which are calculated by value at risk techniques. This is particularly common in financial institutions. Capital allocation may also… …   Big dictionary of business and management

  • capital allocation — The allocation of investment capital to particular units within an organization on the basis of possible losses, which are calculated by value at risk techniques. This is particularly common in financial institutions. Capital allocation may also… …   Accounting dictionary

  • Capital allocation decision — Allocation of invested funds between risk free assets versus the risky portfolio. The New York Times Financial Glossary …   Financial and business terms

  • capital allocation decision — Allocation of invested funds between risk free assets and the risky portfolio. Bloomberg Financial Dictionary …   Financial and business terms

  • Capital Allocation Line - CAL — A line created in a graph of all possible combinations of risky and risk free assets. Also known as the reward to variability ratio . The graph displays to investors the return they can make by taking on a certain level of risk …   Investment dictionary

  • capital market line — noun A line representing the relationship between expected return and standard deviation. See Also: capital allocation line, security market line …   Wiktionary

  • Allocation Universelle — L Allocation universelle désigne le versement d’un revenu unique à tous les citoyens d un pays, quels que soient leurs revenus, leur patrimoine, et leur statut professionnel : ce revenu permettrait à chaque individu de satisfaire ses besoins …   Wikipédia en Français

  • Allocation Des Ressources — L allocation des ressources est un concept économique qui concerne l utilisation des ressources rares et notamment les facteurs de production (travail, capital, matières premières) pour satisfaire à court et long terme les besoins de consommation …   Wikipédia en Français

  • Allocation d'actifs — Allocation des ressources L allocation des ressources est un concept économique qui concerne l utilisation des ressources rares et notamment les facteurs de production (travail, capital, matières premières) pour satisfaire à court et long terme… …   Wikipédia en Français

  • Allocation des capitaux — Allocation des ressources L allocation des ressources est un concept économique qui concerne l utilisation des ressources rares et notamment les facteurs de production (travail, capital, matières premières) pour satisfaire à court et long terme… …   Wikipédia en Français

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.