Cash Flow to Capital Expenditures (CF to CAPEX)
What Is Cash Flow to Capital Expenditures (CF to CAPEX)?
Cash flow to capital expenditures — CF/CapEX — is a ratio that measures a company's ability to get long-term assets utilizing free cash flow. The CF/CapEX ratio will frequently change as organizations go through cycles of large and small capital expenditures. A higher CF/CapEX ratio is indicative of a company with adequate capital to fund investments in new capital expenditures.
Figuring out Cash Flow to Capital Expenditures (CF/CAPEX)
Analysts look to utilize real data to track down hints and experiences about a company. They accept the market is full of possibly undervalued or overvalued securities waiting to be bought or sold for a profit. The primary device of fundamental analysis is the ratio. The cash flow to capital expenditures (CF/CapEX) ratio, as different ratios, gives data about company performance. In particular, the ratio lets analysts know how much cash the company is generating from its operations per dollar it has invested in capital expenditures, like property, plant, and equipment (PP&E). This is significant for analysts who are searching for growth stocks.
CF to CAPEX is calculated as:
Cash Flow to Capital Expenditures = Cash Flow from Operations/Capital Expenditures
The CF/CapEX ratio is calculated by partitioning [cash flow from operations](/cash-flow-from-working exercises) by capital expenditures. Both of these details can be found on the cash flow statement. Capital expenditures are a detail in cash flow from investing since it is viewed as an investment in ongoing years.
For instance, assume a company has $10,000 in cash flows from operations and burns through $5,000 on capital expenditures. In that case, it means that half of each and every dollar produced using operations is going toward capital investment. Assuming the company burns through $1,000 on capital expenditures, it decreases the ratio to 10 to 1, implying that just 10% of each and every dollar produced using operations is going toward capital investment. Assuming cash flows from operations are negative, capital expenditures are being funded by outside sources.
Deciphering Cash Flow to Capital Expenditures (CF/CapEX)
As a rule, a high CF/CapEX ratio is a decent indicator, and a low ratio is an indicator in terms of growth. Think about a vehicle. Any remaining things being equivalent, a vehicle filled with gas is better than an unfilled vehicle. Moreover, it is better to pay for gas out of the cash in your pocket than your credit card. The most ideal situation is a vehicle that has as of late been filled with gas that is paid for with cash in the driver's pocket. This is much the same as a company with a high CF/CapEX ratio. Numerous analysts view capital expenditures as a driver of earnings growth, so a company with low investments in capital expenditures may not go to the extent that the company that just filled up on CapEX.
- Generally, a higher CF/CapEX ratio mirrors a corporation with enough capital to fund investments in new capital expenditures.
- The CF/CapEX ratio fluctuates after some time as organizations go through cycles of large and small capital expenditures.
- Cash flow to capital expenditures (CF/CapEX) takes a gander at a company's ability to purchase long-term assets utilizing free cash flow.