What is the cash flow for capital expenses?

Cash flow to capital expenditure is a financial ratio to measure the amount of operating cash available to the company to invest in the future growth of the company. It is calculated by the fact that the company's operational flow of the company and the division of its capital expenditure on Capex, which are physical assets purchased for the company. If the ratio of the company's cash flows to capital expenditure is increasing, it is a sign that it generates enough income to maintain growth. As with most financial conditions, this is best used to measure the company against its previous performance or to measure the company against its industrial competitors.

While the company can be effective in generating revenue, it often has to constantly turn this money to purchase physical assets. These assets may be necessary for maintenance, such as a new computer purchased to replace obsolete, or can be considered as investments for future growth, as when a company is buying a new FACTory or expands to another new trade market. Regardless of the case, sufficient cash flow is required to carry out these purchases. This aspect of the business world is emphasized by the ratio of cash flows to capital expenditure.

As an example of how the ratio of cash flows to capital expenditure counts, imagine a company that created an operating cash flow of $ 200,000 (USD) during the year. In the same period of time, the company spent $ 400,000 on its capital expenses. $ 200,000 is divided by $ 400,000 USD CAPEX, which provides a ratio of 0.5.

It is important to realize that the ratio of cash flows to capital expenditure is often in the flow. Although operating cash flow is relatively stable for established companies, the total number of CAPEX may be distorted by particularly large expenditure. This would cause ratio and drop, although income that eventually generated from the bigExpenditures would ideally help to bounce and even increase from their previous level.

Although the ratio of cash flows to capital expenditure can be a useful tool to show the capacity of the company itself, it comes with several warnings. For one, this may not be accurate in measuring companies from different industries against each other, as some industries tend to be a more demanding captain than others. Moreover, newer companies tend to have lower ratios because they are often more invested in purchases that the enterprise is in operation.