Our Asset Utilization component analyzes the relative effectiveness with which retailers deploy their cash resources on two key balance sheet items: inventory and capital expenditures.

We adopt the maxim that healthy companies expend fewer resources to drive cash flow than do less healthy companies. Our methodology looks at key cash uses on a typical retailer's balance sheet: the purchase of inventory and capital expenditures.

With regard to inventory investment, the RHRs rate retailers with reference to their five-year average inventory turn. Realizing that high turn without regard to margin can be misleading, the RHRs incorporate the relationship between inventory turn and gross margin.

The RHRs also consider the return on capital expenditures by examining the growth in EBITDA over the benchmark period against capital expenditures. The most efficient companies will show a direct correlation between capital expenditures and incremental cash flow.