Decoding RaymondsIndex: CEI (Capital Efficiency Index), Explained

In 2026, U.S. companies are on track to buy back a record amount of their own stock — close to $1 trillion across the S&P 500, according to S&P Global. On the surface, that looks like strength: firms returning cash to shareholders. But look at the arithmetic underneath. Index revenue grew roughly 8.8% this year, while earnings per share grew 14.2%. A large slice of that "earnings growth" — by most estimates two to four percentage points — didn't come from selling more goods or services. It came from dividing the same profit across fewer shares.

That gap is the reason our Capital Efficiency Index (CEI) exists, and it's a good lens for understanding what the index actually measures.

What CEI reads

CEI is not a verdict on whether a company returned cash. Buybacks and dividends are neutral facts — a healthy firm with genuinely no better use for its capital and a firm hollowing itself out can post the exact same payout line. CEI is built to tell them apart. It weights three components: return on invested capital (ROIC), asset turnover, and an investment-gap ratio that compares what a firm earns to what it actually reinvests. Together these carry 45% of the composite RaymondsIndex — the single heaviest block — because capital that stops being deployed productively is the earliest, quietest sign that a network of insiders has shifted from building value to extracting it.

The logic is simple to state and hard to fake. Returns on capital rising while payouts rise reads as discipline. Returns on capital falling while payouts rise reads as extraction dressed as generosity. The income statement looks identical in both cases; CEI's job is to refuse to be fooled by the identical part.

Korea parallel

Korea is running the same experiment from the other direction. By the end of April 2026, 718 listed companies had filed "value-up" disclosures, up from 177 in January, and SK Hynix and Samsung Electronics announced enormous shareholder returns (₩12.2 trillion in buyback cancellation and ₩6.1 trillion in repurchases, respectively). Yet Korea's market still trades at a price-to-book of about 1.3x against a global average near 2.3x, and the OECD has warned that buybacks and dividends alone cannot fix a discount rooted in how capital is governed. That is precisely a CEI question: is the cash return accompanied by rising returns on capital, or is it a substitute for them? In our back-test across 3,109 Korean listed names, the CEI reading aligned with later distress outcomes roughly 86% of the time (concordance; effect size d > 0.8) — the threshold a signal has to clear before it earns a place in the model.

Academic frame

The academic record is unusually clear here. Almeida, Fos, and Kronlund (2016, Journal of Financial Economics) show that firms which just miss EPS targets repurchase shares to close the gap — and that these buybacks come at the cost of real investment and employment. Asker, Farre-Mensa, and Ljungqvist (2015, Review of Financial Studies) find that public firms invest substantially less and less responsively than comparable private firms, consistent with market pressure pulling capital away from reinvestment. CEI is, in effect, an attempt to price that documented tension continuously rather than after the fact.

What it means for the individual investor

If you hold a stock and a buyback is announced, resist reading it as automatic good news. Ask the CEI question yourself: over the last few years, is this company's return on invested capital climbing or sliding while it hands cash back? Rising returns plus a buyback is a company that has earned the right to return capital. Falling returns plus a buyback is often this quarter's EPS, purchased on credit, at the expense of the compounding that would have mattered to you most.

General observation and educational content, not investment advice.

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