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Article at a glance:

Restating the value of capital light

Investors are hearing that capital-light strategies to boost capital efficiency are financial gimmicks that create no real value. This perception is wrong. Companies that look to their balance sheets for the capital to pursue growth and improve returns are using strategies that are neither new nor surprising. Such a company focuses on the activities that create the greatest value for itself and divests noncore risks, assets, and cash flows to companies that can manage them better. The capital so generated can be increased either organically—by being reinvested in the core business—or through acquisitions.

The take-away

Capital-efficient business models do utilize a sophisticated financial tool kit. But they are legitimate models that can create real shareholder value, not a form of financial engineering.

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