QualityCash Ratio#44
Gross Margin Stability expresses how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
Cash and Equivalents / Current Liabilities
Description
The most conservative liquidity measure. It only considers cash and cash equivalents, ignoring receivables and inventory. This shows whether the company could pay off all short-term obligations immediately using only cash on hand.
Interpretation
Above 0.5 is generally adequate. Above 1.0 means the company holds more cash than short-term obligations. Very high cash ratios in non-financial companies may indicate management is hoarding cash rather than deploying it productively.
Related metrics: Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Gross Margin Stability- Primary source filings used to calculate Gross Margin Stability.
FAQ
How is Gross Margin Stability calculated?+
Gross Margin Stability uses the formula: Cash and Equivalents / Current Liabilities. Mauboussin showed margin stability is the strongest predictor of compounding. 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 Gross Margin Stability value by sector?+
There is no single 'good' value for Gross Margin Stability — context is sector-driven. Mauboussin showed margin stability is the strongest predictor of compounding. The /screener exposes sector-relative percentiles for Gross Margin Stability on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Gross Margin Stability?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Gross Margin Stability 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 Gross Margin Stability?+
Gross Margin Stability can mislead in asset-light businesses where conventional capital ratios mislead. Pair Gross Margin Stability 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 Gross Margin Stability data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Gross Margin Stability data, sector percentiles, and the VMCI composite score that integrates Gross Margin Stability with 119 other indicators across 100,000+ stocks. The free /screener exposes Gross Margin Stability 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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