Let's wrap up this course on capital allocation by recapping some of the ideas and looking at the traits of those who have exemplified capital allocation. When you think of capital allocation, think of Warren Buffett or Henry Singleton. One of your primary roles and being a strategic partner with the CEO is helping them make the best capital allocation decisions. capital allocation is ultimately what distinguishes good from great, long term shareholder return will ultimately become the most important statistic of a CEOs tenure. There are no strict formulas to mastering capital allocation. The right capital allocation decisions vary depending on the situation.

The hallmark of a master capital allocator is maintaining flexibility and picking among the broadest set of opportunities. Those who master capital allocation display a number of common traits Master capital allocators tend to disdain dividends. It's a cop out for not having any better use for cash and it's tax inefficient. Speaking of taxes, Master capital allocators tend to structure deals to minimize taxes, whether they are spinning off a business and issuing shares or buying back stock. Instead of declaring dividends. Performance is measured using cash based metrics, which emphasizes tax efficiency.

Something you can't distinguish with gap based measures because of the requirement to record deferred income taxes. Speaking of cash based metrics, Master capital allocators are primarily concerned about the cash generated from a business, not its earnings. Cash is impacted by the degree of investment in working capital and sustaining capital expenditures. These don't get picked up immediately in a gap based earnings metric Speaking of capital expenditures, Master capital allocators use discipline and patience, waiting for no brainer deals to emerge, which typically happened when capital markets are weak and investors are fearful. And speaking of acquisitions, Master capital allocators do everything possible to avoid diluting their existing shareholders. This may require occasionally leveraging up the balance sheet with debt to make a big bet on the right deal, or to buy back large quantities of their own stock at a discount.

And finally, speaking of avoiding dilution, Master capital allocators do just the opposite. They're always thinking about ways to juice returns by reducing the public float. They are the experts in knowing the value of their own stock and capitalize on opportunities to repurchase shares when the markets are failing to properly attribute value to the company's stock. The CFO is a natural partner for the CEO formulating capital allocation for the company. If the capital allocation is not something you're actively talking about with your CEO, or the board of directors, get it on the agenda. It's one of those biggies.

Finally, for those of you who want to learn more about capital allocation, I highly recommended reading the book, The Outsiders, eight unconventional CEOs, and their radically rational blueprint for success by William Thorndike Jr. So until next time, I'm Blair cook. Don't stop to get to the top and hit the top. Don't stop.