Working Capital Efficiency in the UK: 8.9% CAGR vs the FTSE 100's 1.1% Over 25 Years
The UK produced the highest excess return of any exchange we tested for working capital efficiency. Over 25 years, a portfolio of the UK's most capital-efficient companies returned 8.87% CAGR. The FTSE 100 returned 1.13% over the same period. That's +7.75% annual excess and an 84% win rate (21 out of 25 years beat the index).
Contents
- Why the UK?
- Methodology
- The Numbers
- What Drove the Returns
- When It Struggles
- The Flat Benchmark Question
- Run It Yourself
- Limitations
- Part of a Series
The FTSE 100 has been one of the weakest major indices globally since 2000. A flat benchmark makes the screen look better. But 21 out of 25 winning years, a max drawdown of -22.68% vs -37.75% for the index, and a Sharpe of 0.337 vs -0.181 for the FTSE tell a real story about quality stock selection in the UK market.
Why the UK?
The London Stock Exchange has deep coverage across sectors: financials, energy, consumer staples, healthcare, industrials, and technology. Working capital efficiency screens work best in diversified markets where the signal can differentiate quality operators from the broad index.
The FTSE 100 is heavily weighted toward slow-growth sectors (energy, mining, banking, tobacco). Over the past 25 years, the index barely grew in price terms. Dividends added meaningful return, but the price index stagnated. A quality screen that picks capital-efficient mid-caps and avoids the index's heavy weighting in capital-intensive sectors naturally outperforms in this environment.
The UK also had thinner mid-cap coverage relative to the US through much of this period. Less analyst attention means more mispricing for quality signals.
Methodology
Universe: LSE (London Stock Exchange) Period: 2000-2025 (25 years, 25 annual periods) Portfolio: Top 30 by WC/Revenue ASC, equal weight. Cash if fewer than 10 qualify. Rebalancing: Annual (June) Costs: Size-tiered transaction costs applied Point-in-time: 45-day lag on financial data Benchmark: FTSE 100 (^FTSE). Both portfolio and benchmark returns are in GBP, making the comparison currency-neutral. Execution: MOC (market-on-close, next-day). Signal generated from prior-close data, trades execute at the following close. Data: Ceta Research (FMP financial data warehouse)
Signal SQL:
SELECT b.symbol, p.companyName, p.exchange,
ROUND((b.totalCurrentAssets - b.totalCurrentLiabilities) / i.revenue, 3)
AS wc_to_revenue,
ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
ROUND(f.operatingProfitMarginTTM * 100, 1) AS opm_pct,
ROUND(k.marketCap / 1e9, 2) AS mktcap_b
FROM balance_sheet b
JOIN income_statement i ON b.symbol = i.symbol
JOIN profile p ON b.symbol = p.symbol
JOIN key_metrics_ttm k ON b.symbol = k.symbol
JOIN financial_ratios_ttm f ON b.symbol = f.symbol
WHERE b.period = 'FY'
AND b.totalCurrentAssets > b.totalCurrentLiabilities
AND (b.totalCurrentAssets - b.totalCurrentLiabilities) / i.revenue < 0.50
AND i.revenue > 0
AND k.returnOnEquityTTM > 0.08
AND f.operatingProfitMarginTTM > 0.10
AND k.marketCap > 500000000
AND p.exchange IN ('LSE')
ORDER BY wc_to_revenue ASC
LIMIT 30
The Numbers
| Metric | WC UK | FTSE 100 |
|---|---|---|
| CAGR | 8.87% | 1.13% |
| Excess CAGR | +7.75% | -- |
| Sharpe Ratio | 0.337 | -0.181 |
| Sortino Ratio | 0.702 | -0.226 |
| Max Drawdown | -22.68% | -37.75% |
| Annualized Volatility | 15.97% | 13.16% |
| Total Return | 738% | 32% |
| Beta | 0.860 | 1.0 |
| Down Capture | 16% | -- |
| Up Capture | 160% | -- |
| Win Rate | 84% | -- |
Zero cash periods. The portfolio was fully invested in all 25 years, averaging 19.8 stocks.
The 16% down capture is remarkable: the portfolio captured only a sixth of the FTSE 100's downside while gaining 160% of its upside. The FTSE 100's negative Sharpe ratio (-0.181) tells the story of a weak index. The working capital screen delivered positive risk-adjusted returns where the index didn't.
Annual returns:
| Year | Portfolio | FTSE 100 | Excess |
|---|---|---|---|
| 2000 | +5.8% | -11.7% | +17.5% |
| 2001 | +19.8% | -14.8% | +34.6% |
| 2002 | -22.7% | -17.2% | -5.4% |
| 2003 | +15.4% | +7.1% | +8.3% |
| 2004 | +27.4% | +13.2% | +14.3% |
| 2005 | +25.6% | +15.2% | +10.5% |
| 2006 | +26.6% | +15.6% | +11.0% |
| 2007 | -4.8% | -9.9% | +5.1% |
| 2008 | -12.4% | -25.5% | +13.1% |
| 2009 | +32.1% | +15.1% | +17.0% |
| 2010 | +21.8% | +13.5% | +8.3% |
| 2011 | -5.5% | -7.9% | +2.4% |
| 2012 | +29.3% | +21.2% | +8.1% |
| 2013 | +13.4% | +5.2% | +8.2% |
| 2014 | +9.3% | +0.9% | +8.4% |
| 2015 | -0.9% | -10.7% | +9.8% |
| 2016 | +7.4% | +22.0% | -14.6% |
| 2017 | +5.3% | +2.6% | +2.7% |
| 2018 | +5.5% | -7.2% | +12.7% |
| 2019 | -1.5% | -13.4% | +11.9% |
| 2020 | +41.6% | +14.3% | +27.3% |
| 2021 | -13.9% | +7.0% | -21.0% |
| 2022 | -1.9% | -0.0% | -1.9% |
| 2023 | +20.0% | +8.6% | +11.4% |
| 2024 | +7.6% | +6.2% | +1.4% |
21 of 25 years of positive excess. The only negative years: 2002 (-5.4%), 2016 (-14.6%), 2021 (-21.0%), and 2022 (-1.9%). That's the strongest win rate across all 15 exchanges we tested.
What Drove the Returns
2000-2001: the dotcom bust was kind. +5.8% in 2000 while the FTSE dropped 11.7%. Then +19.8% in 2001 while the FTSE dropped 14.8%. UK quality companies with lean working capital held their value while the broader index collapsed.
2003-2006: sustained compounding. Four consecutive years of double-digit excess: +8.3%, +14.3%, +10.5%, +11.0%. The UK economy was growing, and quality mid-cap companies with efficient operations outperformed the FTSE 100's heavy weighting in banks and oil.
The financial crisis (2008). -12.4% vs -25.5% for the FTSE 100. The portfolio lost about half of what the index lost. Working capital efficient companies avoided the worst of the bank-led collapse because the screen naturally underweights financials (which have structurally different working capital).
COVID recovery (2020). +41.6% vs +14.3%. The best single-year outperformance after 2001. Quality companies bounced hard.
2019: resilience during Brexit uncertainty. -1.5% vs -13.4%. While the FTSE 100 was hammered by political uncertainty, the quality screen's GBP-denominated mid-caps held up.
When It Struggles
2016: the Brexit rally. +7.4% vs +22.0% for the FTSE 100. After the Brexit vote, GBP crashed and multinational FTSE 100 companies (earning in USD/EUR) surged on the currency effect. The quality screen held domestically-oriented companies that didn't benefit from the weaker pound.
2021: post-COVID rotation. -13.9% vs +7.0%. The market rotated into cyclical and value stocks (energy, mining, banks) that the quality screen had underweighted. This was the worst year for excess returns.
These are the only two years with meaningful underperformance. The strategy's weakness is concentrated in periods where the FTSE 100's heavy commodity/financial weighting was rewarded.
The Flat Benchmark Question
The FTSE 100 returned 1.13% CAGR over 25 years in price terms. That's almost nothing. So is the +7.75% excess just an artifact of a weak benchmark?
Partially. A strong benchmark would compress the excess. Against SPY (7.64% CAGR), the UK portfolio's 8.87% CAGR would show only +1.23% excess, similar to the US portfolio's +2.47%.
But the argument isn't just about excess return. The portfolio's absolute 8.87% CAGR, Sharpe of 0.337, and -22.68% max drawdown are solid on their own. The strategy picked quality companies in a market where the index was dominated by slow-growth giants. That's the value of stock selection: the signal found what the index couldn't deliver.
Run It Yourself
# Live screen (current UK stocks)
python3 working-capital/screen.py --preset uk
# Historical backtest
python3 working-capital/backtest.py --preset uk --output results/uk.json --verbose
Limitations
Weak benchmark flatters the excess. The FTSE 100's 1.13% CAGR makes any reasonable stock-picking strategy look good. The +7.75% excess partly reflects a benchmark problem, not just signal quality.
Average portfolio size is smaller. 19.8 stocks per period (vs 25+ for most other exchanges). Individual company effects matter more in a smaller portfolio.
Post-2014 portfolio shrank temporarily. The portfolio dropped to 8-11 stocks in 2014-2017, likely due to FMP coverage changes for LSE. Results in these years carry higher concentration risk.
No local mid-cap benchmark. The FTSE 100 is a large-cap index. A FTSE 250 or FTSE All-Share benchmark would be more appropriate for a portfolio that includes mid-caps. The excess might shrink against a broader UK index.
Part of a Series
- Working Capital Efficiency in the US (flagship, full methodology)
- Working Capital Efficiency in India (+2.9%/yr vs Sensex)
- Working Capital Efficiency in Canada (lowest drawdown)
- 15-Exchange Global Comparison
Data: Ceta Research (FMP financial data warehouse), LSE, 2000-2025. Returns in GBP, benchmarked against FTSE 100. Full methodology: METHODOLOGY.md
