One of the things Warren Buffet insists on most is that "allocation is the most important management issue". Over the years, working on many projects with many financial and management teams, I totally agree with this.
Capital allocation refers to the process of distributing and investing a company's financial resources in ways that will increase its efficiency and maximize its profits. It is a strategic financial decision made by the chief executive and chief financial officers that is critical to a company's long-term success
And it is a very dificcult skill in financial teams, And i would add "undervaluated"; effective capital allocation is critical to a company's success, and it can be complicated.
Allocation refers to "how to allocate your financial resources", specifically how to allocate the free cash flow that your company generates.
From a financial point of view, these free cash flows can be allocated as:
1/ Reinvest in the company
2/ Purchasing another business (M&A)
4/ Share buybacks
The first point can be put in many ways, as "reinvesting" can be thought of as talent, intangible assets, branding, research and development, and so on.
Capital allocation creates lasting value for all stakeholders and can significantly impact a company's future growth and profitability. For that reason profesional investors want to invest in companies which can reinvest most of their free cash flow in their own business at attractive rates of return.