Capital Expenditure Ratio - Explained
What is the Capital Expenditure Ratio?
Written by J. Mance Gordon
Updated at April 19th, 2024
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What is the Capital Expenditure Ratio?
The capital expenditure ratio is cash provided by operating activities divided by capital expenditures.
Capital expenditure ratio = Cash provided by operating activities / Capital expenditures
This ratio measures the company’s ability to generate enough cash from daily operations to cover capital expenditures.
A ratio in excess of 1.0, for example, indicates the company was able to generate enough operating cash to cover investments in property, plant, and equipment.
The numerator, cash provided by operating activities, comes from the bottom of the operating activities section of the statement of cash flows.
The denominator, capital expenditures, comes from information within the investing activities section of the statement of cash flows.
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