Skip to main content
Back

Ratios: Capital Acquisition Ratio quiz

Control buttons has been changed to "navigation" mode.
1/15
  • What does the capital acquisitions ratio measure?
    It measures the ability of operating cash flows to cover fixed asset purchases.
  • What is the numerator in the capital acquisitions ratio?
    The numerator is the cash flow from operating activities.
  • Where do you find the cash flow from operating activities for this ratio?
    It is found in the operating section of the statement of cash flows.
  • What is the denominator in the capital acquisitions ratio?
    The denominator is the cash paid for property, plant, and equipment (fixed assets).
  • Which section of the statement of cash flows provides the denominator for this ratio?
    The investing section provides the cash paid for fixed assets.
  • What does a capital acquisitions ratio below 1 indicate?
    It indicates that operating cash flows are insufficient to cover capital expenditures, requiring financing from other sources.
  • What does a higher capital acquisitions ratio suggest about a company’s finances?
    It suggests better coverage of capital expenditures by operating cash flows, reducing the need for additional debt.
  • Why might a company have a capital acquisitions ratio below 1?
    Because its operating cash flows are not enough to cover all capital expenditures, possibly due to expansion or large asset purchases.
  • What are capital expenditures typically used for?
    They are used to purchase fixed assets like property, plant, and equipment.
  • Why is it important for operating cash flows to cover capital expenditures?
    Because it means the company can fund asset purchases without needing to borrow money.
  • What are the three sections of the statement of cash flows?
    Operating, investing, and financing sections.
  • What does the financing section of the statement of cash flows include?
    It includes transactions with debt holders and shareholders, such as paying dividends or raising money from stock.
  • If a company’s capital acquisitions ratio is high, what does this imply about its need for debt?
    It implies a lower need for debt to finance fixed asset purchases.
  • How does the capital acquisitions ratio help in analyzing a company’s financial health?
    It shows whether the company can sustain asset purchases from its core operations without relying on external financing.
  • What might a company expect if it is buying many fixed assets and its ratio is below 1?
    It may expect to generate more cash in the future due to expansion, but currently needs external financing.