{"id":16755,"date":"2026-09-17T15:57:49","date_gmt":"2026-09-17T13:57:49","guid":{"rendered":"https:\/\/hqam.ch\/the-quality-pulse-issue-2\/"},"modified":"2026-09-17T16:12:27","modified_gmt":"2026-09-17T14:12:27","slug":"the-quality-pulse-issue-2","status":"publish","type":"post","link":"https:\/\/hqam.ch\/en\/the-quality-pulse-issue-2\/","title":{"rendered":"The Quality Pulse | Issue 2"},"content":{"rendered":"\t\t
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Growth is easy.\nReturns are hard.\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Growth tells investors a simple story: more customers, more revenue, more earnings, a larger market. Yet almost any company can grow if it is willing to spend enough money \u2013 another factory, another data centre, another billion in research. Revenue will often follow. <\/p>

The harder question is what happens to the money that growth requires. Growth is the consequence; capital allocation is the decision. Economic value is created only when the return on incremental capital exceeds its cost. Two companies growing at exactly the same rate can therefore create radically different amounts of value. <\/p>

Figure 1: Expected Capital Expenditures in 2026 (in billions of dollars): Alphabet and Meta are at the midpoint of the reported range.<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source: Company Disclosure<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The reinvestment problem<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Consider two companies that each generate $1b of free cash flow. Company A has few attractive opportunities to reinvest. Company B can repeatedly deploy a meaningful share of that cash into projects capable of producing high returns for many years. Today both may look equally profitable. Over a decade, they can become radically different investments. The difference is reinvestment runway. <\/span><\/p>

Figure 2: Current Quality Companies \u2013 ROIC-WACC Spread in Percentage Points, 2021\u20132025<\/i><\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source: HQAM, Refinitiv<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The ROIC\u2013WACC spread provides the clearest test: it compares the return a company earns on its invested capital with the return its investors require for bearing that risk. In 2025, US Quality companies earned 26.7 percentage points above their cost of capital and European Quality companies 13.6 \u2013 while R&D remained a healthy share of sales in both groups. Those returns were not bought by starving the future. <\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Conclusion<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Growth can be purchased; superior returns must still be earned. What matters is not how fast a company grows, but whether each additional dollar of capital earns more than it costs \u2013 and whether the company has enough attractive places to keep doing so. <\/p>

The best management teams are capital allocators. The best Quality companies continually give them attractive places to put the next dollar. <\/p>

Download the full Quality Pulse as a PDF<\/strong><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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\n\t\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\tPDF<\/span>\n\t\t\t\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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ADVERTISEMENT<\/strong>
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