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Capital expenditure ratio definition

Description

Capital expenditure ratio exposes proportion between the money from operating cash flow and the money used for capital expenditures. This ratio shows whether a company earns more from its’ main activities or spends more to maintain or expand these activities. Data needed to calculate this ratio is collected from balance sheet and cash flow statement.

This ratio is important for company’s owners as it shows the efficiency of company’s core business. For the same reason capital expenditure ratio value might interest investors as well.

Norms and limitation

There are no norms and limitations for this ratio.

While evaluating the value of this ratio one must pay attention to the industry a company is operating in. Different industries have different demands for capital expenditures.

Formula

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

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