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Capital Allocation Score

Measures how effectively management deploys capital — the difference between a company that compounds value and one that destroys it.

Score: 0–100 Rating: excellent (≥75) | good (50–74) | fair (25–49) | poor (<25)

Signals

Signal Weight Logic
Value Creation (ROIC vs WACC) 35% (ROIC − WACC) spread and its trend; positive, growing spread = compounding value
FCF Quality 25% OCF / Net Income and FCF margin trend; cash-backed earnings indicate durable business model
Reinvestment Yield 25% Incremental revenue growth per dollar of new invested capital; high ROIIC signals productive reinvestment
Payout Discipline 15% Dividend and buyback activity relative to FCF and ROIC; rewards capital returned only when above-WACC opportunities are scarce

Usage

from fin_ratios.utils.capital_allocation import (
    capital_allocation_score_from_series,
    capital_allocation_score,
)
from fin_ratios.fetchers.edgar import fetch_edgar

annual_data = fetch_edgar('MSFT', num_years=7)
score = capital_allocation_score_from_series(annual_data, wacc=0.09)

print(score.score)    # 78
print(score.rating)   # 'excellent'
print(score.table())  # signal breakdown table

# One-liner
score = capital_allocation_score('MSFT', years=7, source='yahoo', wacc=0.09)

import { capitalAllocationScoreFromSeries } from 'fin-ratios'
import { fetchEdgarFlat } from 'fin-ratios/fetchers/edgar'

const annualData = await fetchEdgarFlat('MSFT')
const score = capitalAllocationScoreFromSeries(annualData, 0.09)

console.log(score.score)   // 78
console.log(score.rating)  // 'excellent'

Output Structure

@dataclass
class CapitalAllocationScore:
    score: int
    rating: str   # excellent / good / fair / poor
    components: CapitalAllocationComponents
    evidence: list[str]
    interpretation: str
    wacc_used: float
    years_analyzed: int

@dataclass
class CapitalAllocationComponents:
    value_creation: float    # 0–1
    fcf_quality: float       # 0–1
    reinvestment_yield: float  # 0–1
    payout_discipline: float  # 0–1

Minimum Data Requirements

  • At least 3 years of data
  • net_income, operating_cash_flow, capex, total_equity, total_debt, cash needed for all signals

References

  • Mauboussin, M. (2012). The Importance of Capital Allocation. Credit Suisse.
  • Koller, T., Goedhart, M., Wessels, D. (2020). Valuation (7th ed.). McKinsey & Company.