A good company should have a long term view and vision, and then a strategies how to achieve the vision step by step. Therefore, decision on how to allocate capital expenditure should not be NPV or IRR priorities. Capital expenditure should be according to the step by step strategy planning to achieve the long term goal.
NPV and IRR are developed base on future cash flow forecast. Some project might generate very good NPV and IRR but will shift the path of the company long term direction and objective. And I think if a company, like a person, who don't have a direction, who just follow where the whatever opportunity that flash through their eye, will get confused and getting nowhere in the end. They are more likely to be conned since they will be very surface but not expert if they are involve in so many thing.
In order to achieve the long term goal, company need to be very focus and not distracted by other temptation investment opportunity. Sometimes the company work on smaller project to build foundation, sometimes the company work on big project to expand. This should be the way the company grow.
If a company just chase whatever investment opportunity that looks or in reality good just because the company has strong financial background, then I think the existence of the company is just to fulfill the shareholder and investor quarter to quarter value creation, but no meaning to a community as a whole.
No comments:
Post a Comment