Wize University Introduction to Financial Accounting Textbook > The Cash Flow Statement
Capital Expenditure Ratio
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Capital Expenditure Ratio
The capital expenditure ratio measures the company's ability to finance the purchase of fixed assets using cash from operations.
What are Capital Expenditures?
- Cash spent on fixed assets (property, plant and equipment).
- Located in the investing activities section of the cash flow statement.
Interpreting the Ratio
- Ratio > 1: This means the company can afford to pay for its capital expenditures using cash generated by its operations.
- Ratio < 1: This means the company cannot afford to pay for its capital expenditures using cash generated by its operations and would require non-operating sources of cash.
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Example: Capital Expenditure Ratio
Compute the capital expenditure ratio for Apple, Inc. for the year ended September 28, 2019.
Practice: Capital Expenditure Ratio
Use the following financial statements to compute the capital expenditure ratio for the year ended May 31, 2020.
Capital expenditure ratio
Do not round your work, round your final answer to 2 decimal places.