All profitable companies face a make-or-break dilemma…
This matters when you’re determining if a stock is undervalued. Most investors focus on the free cash flows the company will generate in the future. This is indeed critical information for determining a company’s intrinsic value – what it’s worth.
But often overlooked is the other half of this equation: what a company does with its cash flows – in other words, “capital allocation.”
Today, I’ll quickly go over the six ways a profitable company can use its cash. This way, you’ll have the tools to recognize the difference between a sound company that creates value for shareholders… or a poorly run value-destroyer.
This post originally appeared at DailyWealth.