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Capital expenditure coverage ratio definition

Description

Capital expenditure coverage ratio shows whether the company generates enough cash (from operating cash flow) to cover its’ expenses, paid for purchased capital asset or for made investments. Data to calculate this ratio is collected from balance sheet and cash flow statement.

Capital expenditure (CAPEX) can be described as main expenses to keep up company's competitive shape. Therefore the capital expenditure coverage interests company’s investors and owners.

Norms and limitations

There are no general norms for this ratio.

Higher capital expenditure coverage value shows lower usage of operating cash flow for capital expenditure. It is recommended to compare this ratio to those of the companies, working within the same industry.

Formula

Operating cash flow (OCF, cash flow from operations) is the money that a company earns from its’ core business.

Capital expenditures or CAPEX are expenses, paid for purchased capital asset or for made investments.