Capital Expenditures & Cash Dividends Coverage Ratio

Capital Expenditures & Cash Dividends Coverage Ratio is used to assess the investment attractiveness of an enterprise. It shows whether the company is solvent with regard to its investors and whether it has any long-term prospects.

Alternative names of the Capital Expenditures & Cash Dividends Coverage Ratio:

  • Capital Expenditures & Cash Dividends Coverage Ratio
  • Capital Expenditure & Dividend Coverage Ratio
  • CAPEX&DCR

What Does the Capital Expenditures & Cash Dividends Coverage Ratio Show?

The indicator shows the ability of the company to cover its own investment costs and pay dividends at the expense of the operating activity. For the investor, it’s important not only to receive money at a particular moment but also understand the company is developing and it will earn more money in the future.

Formula of the Capital Expenditures & Cash Dividends Coverage Ratio

CAPEX & DCR = Operating cash flow / (Capital expenditures + Dividends paid)

Normative Value of the Capital Expenditures & Cash Dividends Coverage Ratio

Normally, the value of this indicator exceeds 1. However, it is acceptable to have it below 1, in case an enterprise implements an active investment program, i.e. replaces the obsolete equipment or makes investments in a new area of activity. The indicator should not be investigated without the dynamics of capital expenditures, since it is the dynamics that provides the proper understanding of the indicator’s economic sense.