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> Yes, but sane CFOs have to evaluate "what's the best use for this money?" and trade off share buy-backs (or overt dividend declarations) against other investm
by nandemo 13y ago
> Yes, but sane CFOs have to evaluate "what's the best use for this money?" and trade off share buy-backs (or overt dividend declarations) against other investments the company could make.
Sure. That means they decide between investing a certain amount of capital in some projects, or returning that capital to the investors.
> So, it's perfectly reasonable to say that any investment with dramatically worse return than a share buy-back is a financial loser.
Not, it's not reasonable. Investing on a project has return for the company, but dividends or buybacks don't. They're in a different category. I think OP wanted to say "it would have been better to invest the money at the risk-free rate than investing on that project".
- sokoloff 13y agoCFOs are paid to and should be evaluated on creating/optimizing returns for the owners of the company (the shareholders). If the return from a project for the company (and the therefore the shareholders) is greater than that of a dividend/buyback, do the project. If the dividend/buyback is the idea with the best return, do that. This evaluation works whether on a projected/discounted look-forward basis or a backward looking basis. In both cases, you have to model assumptions about the path not taken. Note that most established companies have a portfolio of ideas. Few operating companies return most of their net profits to shareholders. (some companies setup as financial instruments do/must, and whether a REIT is an operating company or not is a question, but Microsoft certainly is an operating company and returning 100% of net profits, even if that were the best idea they had on first-order evaluation, would be a terrible idea.)