Efficiency Metrics

Rafael Gomes·August 30, 2026

Efficiency metrics measure how hard a company works its assets and working capital: how fast inventory turns over, how quickly customers pay, how much capex it takes just to keep the machine running. Two identically profitable businesses can differ enormously here, and the difference compounds - the faster operator needs less capital to grow. All figures in the ValueMap screener are trailing twelve months (TTM).

Asset Turnover

\text{Asset Turnover} = \frac{\text{Revenue}}{\text{Total Assets}}

What it is: Asset turnover is revenue divided by total assets - how many dollars of sales each dollar sitting on the balance sheet produces per year. A ratio of 1 means the company sells its own balance sheet’s worth of goods and services annually.

Why value investors care: Above 1 counts as efficient for most industries, but the number is meaningless without industry context: retailers run 2 or higher, utilities sit around 0.3, and both can be excellent businesses. Its real power is the DuPont decomposition - multiply asset turnover by net margin and you get return on assets, which tells you whether a company earns its living through fat margins or fast turns. Turnover is the leg of that equation hardest to fake. The warning sign to screen for: turnover falling while revenue rises means the balance sheet is bloating faster than the business, usually through capitalized costs or acquisitions. Compare within an industry, never across.

\text{Capex Per Share} = \frac{\text{Capital Expenditures}}{\text{Shares Outstanding}}

What it is: Capital expenditures divided by shares outstanding - the company’s spending on plant, equipment, and other long-lived assets, expressed per share so it lines up with every other per-share figure on the sheet.

Why value investors care: Its natural companion is operating cash flow per share: set the two side by side and you see, share by share, how much of the cash the business generates must be plowed back in before anything is left for owners. Capex per share persistently near or above OCF per share means the business runs to stand still. One trap: buybacks shrink the share count and inflate this number without any change in actual spending, so confirm with the ratio metrics below before drawing conclusions.

Capex To Depreciation

\text{Capex To Depreciation} = \frac{\text{Capital Expenditures}}{\text{Depreciation \& Amortization}}

What it is: Capital expenditures divided by depreciation and amortization - new investment measured against the accounting charge for assets wearing out. A ratio around 1 means the company is replacing its asset base at roughly the rate it decays: steady-state maintenance.

Why value investors care: Well below 1 sustained for years hints at underinvestment - management harvesting the business, which means today’s earnings are partly borrowed from the future, because the deferred capex eventually comes due all at once. Well above 1 means growth investment, or simply inflation catching up with depreciation booked at old historical costs. As a working frame: 0.8-1.3 is normal replacement territory, below 0.7 for several consecutive years is a harvest flag, and above 1.5 is a prompt to check whether the growth spending is actually earning a return. No single year proves anything; a sustained drift in either direction is what deserves questions.

Capex To Operating Cash Flow

\text{Capex To OCF} = \frac{\text{Capital Expenditures}}{\text{Operating Cash Flow}}

What it is: Capital expenditures as a share of operating cash flow - the fraction of the cash the operations generate that must go straight back into plant and equipment before owners see a cent.

Why value investors care: Below 30% leaves most of the operating cash as free cash flow - the asset-light profile where P/OCF and P/FCF nearly agree and the business can fund dividends, buybacks, and growth from its own pocket. Above 60% marks a capital-hungry business where most of the cash gushing in goes straight back out the door. This is Buffett’s dividing line between businesses that gush cash and businesses that consume it, and it is why two companies at the same EV/EBITDA can be entirely different bargains. The caveat: companies defer capex to dress this ratio up ahead of a sale or refinancing, so read it across several years, not one.

Capex To Revenue

\text{Capex To Revenue} = \frac{\text{Capital Expenditures}}{\text{Revenue}}

What it is: Capital expenditures divided by revenue - capital intensity per dollar of sales. It answers how much physical investment the business model demands to support its top line.

Why value investors care: Below 5% is asset-light territory - software, services, brands. Above 15% is heavy industry - telecoms, railroads, utilities - and it stays there forever, because the intensity is the business model, not a phase. Its main use is honest cross-industry comparison: a low EV/EBITDA in a high-capex industry is far less cheap than the same multiple in a low-capex one, which was Munger’s whole complaint about EBITDA. Stability is the virtue here; a sudden drop in the ratio more often signals harvesting than newfound efficiency.

Cash Conversion Cycle

\text{CCC} = \text{DIO} + \text{DSO} - \text{DPO}

What it is: The cash conversion cycle adds days of inventory outstanding to days of sales outstanding, then subtracts days of payables outstanding - the number of days a dollar stays trapped in working capital between paying suppliers and collecting from customers.

Why value investors care: Lower is better, and negative is elite: customers pay before suppliers get paid, so the working capital of growth funds itself - the classic examples are big-box retail, which sells inventory before the supplier invoice comes due, and subscription software, which collects a year upfront. A cycle lengthening year over year quietly eats cash even while reported profits grow, and it is one of the earliest signs of a business model deteriorating. There is no universal good number - a distiller and a grocer live on different planets - so compare a company against its own history and its direct peers, and treat the three component metrics below as the diagnostic detail.

Days Of Inventory Outstanding

\text{DIO} = \frac{\text{365 x Average Inventory}}{\text{Cost of Goods Sold}}

What it is: Days of inventory outstanding: how many days goods sit on the shelf before selling. It is the first component of the Cash Conversion Cycle and the days-based twin of Inventory Turnover.

Why value investors care: Rising DIO ahead of revenue growth is the classic sign of demand fading before management admits it, and in fashion or technology, aging inventory is worth far less than its book value suggests. Falling DIO in a stable business is pure efficiency gain. Read it inside the CCC rather than alone.

Days Of Payables Outstanding

\text{DPO} = \frac{\text{365 x Average Payables}}{\text{Cost of Goods Sold}}

What it is: Days of payables outstanding: how long the company takes to pay its suppliers - the component that gets subtracted in the Cash Conversion Cycle, because supplier credit is free financing.

Why value investors care: High DPO is usually bargaining power - nobody stretches Walmart. But a sudden jump at a mediocre business is frequently distress: paying late because it must, not because it can. Judge the trend against peers, and read it as part of the CCC.

Days Of Sales Outstanding

\text{DSO} = \frac{\text{365 x Average Receivables}}{\text{Revenue}}

What it is: Days of sales outstanding: how many days customers take to pay after being billed - the third component of the Cash Conversion Cycle, and the days-based twin of Receivables Turnover.

Why value investors care: This is the premier earnings-quality metric on the page. DSO rising faster than revenue growth means the company is booking sales it has not collected - channel stuffing, loosened credit terms, or customers in trouble - and several famous frauds announced themselves here first. Stable or falling DSO alongside growing revenue is what clean growth looks like. The caveat: businesses selling to governments or large enterprises carry structurally high DSO without anything being wrong.

Fixed Asset Turnover

\text{Fixed Asset Turnover} = \frac{\text{Revenue}}{\text{Net Property, Plant \& Equipment}}

What it is: Revenue divided by net property, plant, and equipment - sales generated per dollar of hard assets specifically. It is Asset Turnover with the cash, receivables, and goodwill stripped out.

Why value investors care: Sharper than total asset turnover for manufacturers and retailers, since it isolates the productive machinery. A rising ratio means either genuine productivity or an aging, under-depreciated asset base heading for a capex catch-up - cross-check with Capex To Depreciation to tell which story you are looking at.

Inventory Turnover

\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}

What it is: How many times per year the company sells through its stock. It is the same information as Days Of Inventory Outstanding, viewed as cycles per year instead of days - turnover equals 365 divided by DIO.

Why value investors care: Higher is better within an industry: fast turns mean less capital tied up and less obsolescence risk. A grocer turns 15 times, a jeweler twice, and both can be fine. Deceleration is the red flag, especially when management blames “supply chain investment.” See DIO for the fuller framework.

Operating Cycle

\text{Operating Cycle} = \text{DIO} + \text{DSO}

What it is: Days of inventory outstanding plus days of sales outstanding - the days from buying inventory to collecting cash from its sale. It is the Cash Conversion Cycle before the payables relief: the gross length of the working-capital loop rather than the net.

Why value investors care: It measures exposure to a credit crunch. A long operating cycle needs financing regardless of how generously suppliers extend terms today, and supplier terms are exactly what vanishes in a downturn. Two companies with identical CCCs can carry very different operating cycles, and the one leaning harder on payables is the more fragile of the pair.

Payables Turnover

\text{Payables Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Payables}}

What it is: How many times per year the company pays off its supplier balances - Days Of Payables Outstanding restated as cycles, since turnover equals 365 divided by DPO. Same information, different units.

Why value investors care: Slow payment (low turnover) is strength when chosen and weakness when forced. Its practical screening use is spotting change: a company whose payables turnover halves in a year has either gained real leverage over suppliers or started conserving cash the hard way. See DPO for the fuller reading.

Receivables Turnover

\text{Receivables Turnover} = \frac{\text{Revenue}}{\text{Average Receivables}}

What it is: How many times per year the receivables book converts to cash - the cycles-per-year view of Days Of Sales Outstanding, where turnover equals 365 divided by DSO.

Why value investors care: Higher means customers pay fast. As with DSO, the trend outranks the level, and turnover deteriorating while revenue accelerates is the earnings-quality combination that should stop you cold - the full framework lives under DSO above.

Working Capital Turnover Ratio

\text{Working Capital Turnover} = \frac{\text{Revenue}}{\text{Working Capital}}

What it is: Revenue divided by net working capital - how many dollars of sales the company squeezes out of each dollar tied up in the day-to-day operating buffer.

Why value investors care: A high ratio means either an efficient, lean operation or a dangerously thin buffer - the metric cannot tell you which by itself. Extremely high or negative readings usually mean working capital sits near zero or below, which for a strong retailer is a feature, not a bug, and for a weak business is a liquidity problem waiting for a bad quarter. That makes the number erratic near the zero line, so treat outliers as a prompt to open the balance sheet directly rather than as a ranking signal.