QualityCurrent Ratio#42
Capital Efficiency measures how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
Current Assets / Current Liabilities
Description
Measures a company's ability to pay short-term obligations with short-term assets. It is one of the oldest liquidity metrics in financial analysis and a key criterion in many value investing screens. Benjamin Graham required a current ratio of at least 2 for defensive stock selections.
Interpretation
Above 1.5 is generally acceptable. Above 2.0 is strong. Below 1.0 may indicate liquidity risk. However, very high ratios (above 4) may signal inefficient use of working capital.
Related metrics: Return on Equity (ROE), Return on Assets (ROA). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Capital Efficiency- Primary source filings used to calculate Capital Efficiency.
FAQ
How is Capital Efficiency calculated?+
Capital Efficiency uses the formula: Current Assets / Current Liabilities. compare against sector median on /screener with the Sector filter applied. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K + 10-Q filings (segment-level disclosures).
What is a good Capital Efficiency value by sector?+
There is no single 'good' value for Capital Efficiency — context is sector-driven. compare against sector median on /screener with the Sector filter applied. The /screener exposes sector-relative percentiles for Capital Efficiency on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Capital Efficiency?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Capital Efficiency as a key input to to find compounders with durable economic moats. The academic anchor is Greenblatt (2005) Magic Formula and Mauboussin (2014). ValueMarkers weights this within the Quality pillar of the VMCI score (30% of total).
What are the limitations of Capital Efficiency?+
Capital Efficiency can mislead in asset-light businesses where conventional capital ratios mislead. Pair Capital Efficiency with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Capital Efficiency data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Capital Efficiency data, sector percentiles, and the VMCI composite score that integrates Capital Efficiency with 119 other indicators across 100,000+ stocks. The free /screener exposes Capital Efficiency as a filterable column.
Used in these guides
Related Quality Indicators
Return on Equity (ROE)Op Margin
Return on Equity measures how efficiently a company converts capital into earnings.
Return on Assets (ROA)Net Margin
Return on Assets is the metric used to how efficiently a company converts capital into earnings.
Return on Invested Capital (ROIC)EBITDA Margin
Return on Invested Capital measures how efficiently a company converts capital into earnings.
Return on Capital Employed (ROCE)FCF Margin
Return on Capital Employed is the metric used to how efficiently a company converts capital into earnings.
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