Brookfield is one of the best compounders you’ll ever see. But is it still an interesting investment? Let’s take a look at this high-quality business. Brookfield WeekThis is part III of our Deep Dive in Brookfield Corporation. Did you miss the first two articles? Brookfield👔 Company name: Brookfield Corporation 1. Is the company a great capital allocator?Capital allocation is the most important task of management. We want companies that put the money of shareholders to work at an attractive rate of return. To understand this better, it helps to break capital allocation into its main parts:
Investments in the core businessNormally, we approach this by looking at ROE and ROIC.
For a ‘normal’ business these metrics show how efficiently the company uses its money to make even more money. But Brookfield isn’t a normal business. It’s more like a collection of hundreds of companies. As a result, ROE and ROIC aren’t the right metrics to assess the efficiency of Brookfield’s business. In fact, they can be very misleading. Here is why:
In other words: Brookfield is an investment engine, always buying, selling, and reinvesting to compound value over decades. To judge how well they allocate capital, we should ask:
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