Capital allocation

What management does with the cash the business generates. Five options exist: reinvest in the business, acquire, repay debt, pay dividends, buy back shares.

The measurement is straightforward and rarely done. Add up the cash generated over ten years, note where it went, and compare the return earned on it to what the shareholders could have earned elsewhere. A company that reinvested ₹4,000 crore at an incremental return below its cost of capital has destroyed value while reporting growth in every one of those years.

Most chief executives arrive from operations, marketing or finance, and none of those trains anybody for this. Warren Buffett's observation that capital allocation is the single most important job of a chief executive, and the one they are least prepared for, has held up for forty years.

Read the ten-year record, not the strategy.

Five choices, and the record is public.

The scorecard is easier to build than it looks. Take ten years of operating cash flow, add anything raised from debt or equity, and that is the money that passed through management's hands. Then list where it went: capital expenditure, acquisitions, dividends, buybacks, debt repayment. Set the total reinvested against the growth in operating profit over the same period, and the incremental return falls out. A company that reinvested ₹4,000 crore and added ₹320 crore of operating profit earned 8% on the money, and no narrative about strategic positioning survives that arithmetic.