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Cash Flow To Capex

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Definition

Cash flow to capital expenditures (capex) reviews how many times cash flow is greater than capex. A ratio of one means each dollar that is coming into a company, it is spending it on capital purchases. A ratio of 50 means that cash flow from operations is 50 times higher than a company's spending on PPE.

High ratios potentially indicate that a company is not spending enough on its property, plant, equipment (PPE). For capital intensive companies, high ratios can indicate a company is not replacing its capital assets quickly enough and may be forced to pick up spending in PPE in later years. For service-orientated companies that may not have as much PPE spending, this ratio is not as useful.

Low ratios may be signs that a company is having issues with incoming cash and continuing PPE purchases. Companies in a growth stage often see lower ratios of cash flow to capital (ie. a new car manufacturer will make sizable PPE purchases while not seeing revenues until later).

Formula

YCharts calculates this formula by cash flow from operations (quarterly) over the net change in PPE. Cash Flow to Capex (TTM) is calculated by the cash flow from operations (TTM) over the sum of net changes in PPE (TTM).

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