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What is a hurdlerate for a business? In this post, I will start by looking at the role that hurdlerates play in running a business, with the consequences of setting them too high or too low, and then look at the fundamentals that should cause hurdlerates to vary across companies. What is a hurdlerate?
Not surprisingly, the operating metrics change as companies age, with high revenue growth accompanied by big losses (from work-in-progress business models) and large reinvestment needs (to delivery future growth) in early-stage companies to large profits and free cash flows in the mature phase to stresses on growth and margins in decline.
The dividend principle, which is the focus of this post is built on a very simple principle, which is that if a company is unable to find investments that make returns that meet its hurdlerate thresholds, it should return cash back to the owners in that business.
And you know, just simple things like, hey, the value of tax loss harvesting, how do you make that apparent to people? But the true change comes when, hey, you know what, those loyal to that technological change figure out over not one, two, but three, five years, how to drive change and how to leverage it. BUCKLEY: Oh, how about 2?
So you’ve got, you’ve got a modeling hurdlerate that you need to figure out when you’re adding diversifiers. This is implicitly leverage. Leverage is a tool that accentuates both the good and the bad. And you need to be aware of the leverage risk that’s embedded. The second is behavioral.
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