This essay focuses on Cash Flow from Operations to Capital. it should rely less on external financing or additional contributions by the owners to replace
Cash Flow from Operations to Capital
The cash flow from operations to capital expenditures ratio measures a company’s ability to use operations to finance its acquisitions of productive assets. To the extent that a company is able to do this, it should rely less on external financing or additional contributions by the owners to replace and add to the existing capital base. The ratio is as follows:
- An asset is something containing economic value and/or future benefit.
- An asset can often generate cash flows in the future, such as a piece of machinery, a financial security, or a patent.
- Personal assets may include a house, car, investments, artwork, or home goods.
- For corporations, assets are listed on the balance sheet and netted against liabilities and equity.
There are three key properties of an asset:
- Ownership: Assets represent ownership that can be eventually turn into cash and cash equivalents
- Economic Value: Assets have economic value and can be exchange or sold
- Resource: Assets are resources that can be use to generate future economic benefits
Classification of Assets
Assets are generally classified in three ways;
- firstly, Convertibility: Classifying assets based on how easy it is to convert them into cash.
- Secondly, Physical Existence: Classifying assets based on their physical existence (in other words, tangible vs. intangible assets).
- Thirdly, Usage: Classifying assets based on their business operation usage/purpose.