The Investment Ratio
The investment ratio, also called the reinvestment ratio by some, is the ratio of yearly
capital expenditures divided by annual depreciation. As a rule of thumb, there is a
preference for firms whose investment ratio exceeds 1.0 because they can more easily
maintain the going concern value of the firm by replacing capital assets as they depreciate.
Historically, industrial firms in the U.S have maintained a value of between 1.4 and 1.6 for
this ratio. As reported in Table 4, the average value for the 1990-1994 period for our sample
firms varied between 1.6 and 1.75. However, with the enorm ous improvements in
productivity over the last 10 years, many firms have felt that they could lower their
reinvestment and still maintain productivity. In many firms the manufacturing cycle
improvements have doubled or tripled the capacity of existing manufacturing lines so that
replacement decisions do not require a one-to-one match every year, or certainly not 1.4 to
1.6 times annual depreciation levels on average. This assertion is partially confirmed
looking at the average values reported for the year 2000-2004 which monotonically decline
from 1.6 to 1.22. This confirms Greenspan’s assertion (1999) that “the desired amount of
lead-time insurance, in the form of what after the factwould turn out to have been a partially
unproductive addition to capital stock, has declined.” That is, technology advances,
especially in information technology, have reduced lead times and manufacturing cycle
times which means that firms don’t need to invest well in advance of anticipated needs and
can instead wait until the anticipated needs have been confirmed. And, when we look at the
five year comparisons and the individual comparisons we have confirmation that there has
been a statistically significant decline in the investmentratio during the 1990 to 2004 time
period.
大学生人生价值观特点的调查报告Whether we use the 5 year comparisons or the individual year comparisons, we find
significant change in corporate reinvestment which further bolsters cash flow. We accept the
assertions made in Hypothesis 6.
Skewness and the Kolmogorov-Smirnoff Statistic
We have posited that the shape of the ratio distributionshave changed over time as a
result of corporate management policies regarding the working capital and reinvestment
management of the firm. Therefore, we tested each set of five year distributions using the
nonparametric Kolmogorov-Smirnoff (KS) Test (See Engineering Statistics Handbook). For
every paired year test, there was rejection of the assumption of normality. In addition for
both 5 year period tests for the cash flow per share andthe investment ratio, the changes in
the distributions attributed to skewness were significantat either the .10 level or the .01 level
as indicated in Table 6. Table 5 reports the maximum deviat ion or the maximum distance
between the percentile density functions for the two study periods and the significance level
of the difference. Table 4 reports the skewness measures for each variable for the most
recent (22004-2000) and most distant (1994-1990) 5 years.
Based upon our analysis, we reject the assertions made in hypotheses 1A, 2A, 3A,
and 4A. However, we accept the assertions made in hypotheses 5A and 6A.
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