If an analyst wishes to analyze the ability of a company's operating activities to fund its level of investment in property, plant, and equipment, a good measure would be the:
A) quality of income ratio.
B) working capital.
C) times interest earned ratio.
D) capital acquisitions ratio.

Question

Quizplus · Accepted Answer

The capital acquisitions ratio (also known as the fixed assets to operating cash flow ratio) measures the ability of a company's operating activities to fund its investment in property, plant, and equipment. It calculates the annual cash flow from operating activities divided by capital expenditures on property, plant, and equipment. This ratio indicates how many times a company's cash flow from operations can cover its investment in fixed assets. A higher ratio suggests that a company is generating enough cash flow from its operations to fund its capital expenditures, while a lower ratio may indicate a higher reliance on external financing. Therefore, the capital acquisitions ratio is the best measure in this scenario.

If an Analyst Wishes to Analyze the Ability of a Company's