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A Conversation with Charlie Munger & John Collison - [Invest Like the Best, REPLAY]
Invest Like the Best with Patrick O'Shaughnessy
Leverage Capital for Efficiency
Successful businesses achieve capital efficiency by effectively structuring their operations to minimize capital expenditure while maximizing profits. Companies like Coca-Cola utilize partnerships for capital-intensive tasks, such as bottling, allowing them to focus on brand and marketing. NetJets exemplifies this model by not owning aircraft, shifting ownership and depreciation to others. Similarly, Costco showcases capital efficiency by having rapid inventory turnover, enabling them to postpone payments to suppliers until they generate revenue, effectively utilizing others' capital for inventory financing. The importance of capital efficiency is often overlooked, as many focus on profit margins without considering how capital investment and inventory turnover contribute to overall efficiency. Maintaining healthy relationships with suppliers, rather than exploiting payment terms, is essential for sustainable business practices. A preference for businesses that efficiently turn inventory and maintain good supplier relationships underlines the value of ethical capital management.
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