- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 16. Credit Analysis for Corporate Issuers
- Subject 2. Financial Ratios in Corporate Credit Analysis
CFA Practice Question
A high cash flow from operations to capital expenditures ratio signals that a firm ______.
B. has high financial flexibility
C. is a capital-intensive firm
D. has difficulty adding to capacity via capital expenditures without the need to borrow funds
A. has low financial leverage
B. has high financial flexibility
C. is a capital-intensive firm
D. has difficulty adding to capacity via capital expenditures without the need to borrow funds
Correct Answer: B
The ratio is used to assess the financial flexibility of a firm, and it is particularly useful for capital-intensive firms and utilities.
User Contributed Comments 6
| User | Comment |
|---|---|
| danlan2 | Is C right? |
| MasterD | C is not necessarily correct. A company with say 5 Million CFO with a 1M Capital Expenditures has a higher CFO/Cap than a company with 5 Million CFO and a 4 Million Cap Ex but clearly a lower capital-intensive firm. |
| bmeisner | This question suggest the opposite of C. High cash flow to capex ratio suggests that significant capex is not needed for operations. |
| schweitzdm | Thanks bmeisner |
| praj24 | Cash flow - think liquidity |
| khalifa92 | lol i read the question as high cash outflow from operation to capital expenditure, still confused too xD. |