CFA Practice Question

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CFA Practice Question

A high cash flow from operations to capital expenditures ratio signals that a firm ______.

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.
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