Money doesn’t grow on trees.
The more efficient you can be with it, the longer it will stretch.
Capital efficiency is one way to keep you and your money together in good times and bad.
Sometimes it involves taking risks, but the alternative is to leave your money sitting idle in an inflationary economy that is only weakening your buying power.
It’s the reason why you see a major corporation put its balance sheet to work instead of leaving it on the sidelines.
But capital efficiency isn’t limited to businesses only and is also a concept you can apply to your personal finances, including cryptocurrency investing.
In this article, we’ll explore what capital efficiency is exactly and how you can put it to practice.
Capital efficiency represents how well a company or individual manages their money. It’s a behavior that requires characteristics like discipline and patience, and it usually pays off over the long term.
Capital efficiency shows how much a company is spending relative to how much it is growing its revenues and is often associated with early-stage businesses. The more capital efficient a startup company is, the more likely it is to attract venture backers to its business. Capital efficiency It’s a 30,000-foot view into that company’s financial health.
There are numerous ways to measure capital efficiency, some of which are deemed more effective than others. But the desired outcome is similar, and that’s to maintain greater control of one’s money whether times are good or bad.
For companies, capital efficiency shows how good of a job it is doing allocating its capital to expand. Basically, it weighs the amount of money being poured into a business relative to its revenue growth and ultimately profits.
To understand capital efficiency, it also helps to consider what it isn’t. The opposite of being capital efficient would be to keep money in cash when it could be doing more by finding some other use case, such as investing in an asset class like crypto. By staying in cash, you could actually be losing money as inflation weakens the buying power of fiat money.
Capital efficiency is something that can be measured so you can gauge how efficiently capital is being deployed, something we’ll discuss in more detail below.
As alluded to above, there’s more than one way to measure the capital efficiency of a business or an investor for that matter. Below is a list of some of the primary ways.
Capital efficiency in crypto would mean getting the most out of your digital assets.
This could mean using a faster and cheaper blockchain such as PulseChain, or putting your digital assets to work.
Liquid Loans is an extremely capital efficient protocol.
In addition to operating on a fast and cheap blockchain, the protocols:
When operating in the crypto industry, it is wise to consider all options available to you to be more capital efficient.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Gerelyn is a financial journalist who has been covering Wall Street for more than 20 years. After reporting for some of the top trade publications on investment banking, infrastructure and retirement, she was drawn to decentralization and shifted her coverage to the blockchain and cryptocurrency space in mid-2017. Since then, she has contributed to several major Bitcoin, Blockchain, and DeFi news sites, and has also written a children’s book.