capital efficiency Definition
Capital efficiency is a measure of how well a company uses its capital to generate profits. It is calculated by dividing a company’s operating profit by its total capital. A higher number indicates a more efficient use of capital.
There are two main types of capital that a company can use to generate profits: debt and equity. Debt is money that is borrowed from lenders and must be repaid with interest. Equity is money that is invested by shareholders and does not need to be repaid.
A company can increase its capital efficiency by using more equity and less debt. This will lower the amount of interest that the company must pay, and make it easier to generate profits. Another way to increase capital efficiency is to reinvest profits back into the business, which will help the business grow faster.
