All else equal, an increase in a ﬁrm's capital intensity ratio will increase its external ﬁnancing
needed.

Question

Quizplus · Accepted Answer

Capital intensity ratio is the ratio of a firm's capital expenditures to its labor expenditures. If a firm's capital intensity ratio increases, it means the amount of capital expenditure required per unit of labor increases. This implies that the firm is spending more on capital equipment and technology relative to its workforce. As capital expenditures generally require external financing, an increase in the capital intensity ratio will lead to an increase in the firm's external financing needs.

All Else Equal, an Increase in a ﬁRm's Capital Intensity