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CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II

A company has CFO of USD 800 million, capital expenditures of USD 500 million, and dividends paid of USD 100 million. Its investing and financing coverage is assessed with the capital expenditure ratio (CFO divided by capital expenditures) and the dividend payment ratio (dividends divided by CFO). Which pair of values is most accurate?

The capital expenditure ratio is 1.60 (CFO 800 divided by capex 500) and the dividend payment ratio is 0.125 (dividends 100 divided by CFO 800). The other pairs invert one or both ratios, which misstates the coverage.

  1. ACapital expenditure ratio 0.63; dividend payment ratio 8.0
  2. BCapital expenditure ratio 1.60; dividend payment ratio 0.125Correct
  3. CCapital expenditure ratio 1.60; dividend payment ratio 8.0

Explanation

Capital expenditure ratio = 800/500 = 1.60. Dividend payment ratio = 100/800 = 0.125 (12.5%). The values 0.63 and 8.0 come from inverting the ratios.

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