In 2012, AutoZone, the auto-parts retailer, had an excess of cash on hand. The company had to decide how to best distribute its cash flow in order to maximize its value to shareholders. The company’s options were to:
- Invest the cash in the business (e.g., open additional retail stores),
- Distribute dividends to the shareholders or
- Engage in a share repurchase.
AutoZone used a single metric, return on invested capital (ROIC), as its primary measure of value creation. With the goal of optimizing ROIC, the company’s management team determined it was best to return capital to shareholders through share repurchases, which was consistent with their decision-making in the past. Learn about the impact of this financial policy decision on the company in Professor Kenneth Eades, Justin Brenner and senior researcher Gerry Yemen’s article “AutoZone Keeps Focus on Share Repurchases Instead of Switching to Dividends” in the Darden School of Business/Washington Post “Case in Point” series.