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Capital Efficiency

Capital efficiency describes how effectively invested working capital generates profit, taking into account both margin and the speed at which capital returns.

Why It Matters

  • Determines how quickly a business can grow without additional funding.
  • Identifies SKUs that appear profitable but underperform financially due to slow cycles.
  • Reveals when capital is trapped in products with low returns or long lead times.
  • Provides a more accurate view of performance than margin or turnover alone.

Connection to Capital

Higher capital efficiency means each unit of capital generates more profit per year, enabling reinvestment and compounding growth.

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