FRA / Rhine vignette CAPEX/total assets

CFA Level II
#1

The first question in this vignette asks which of 3 divisions is likely to potentially become less significant in the future.

To evaluate this, the analyst calculates the ratio of CAPEX/total assets.

The correct answer is the division w/ the lowest ratio ( < 1). The other two divisions had ratios > 1.

Why wouldn’t the answer be based on the division that had the greatest percentage decrease in CAPEX/total assets?

The division w/ the lowest ratio had a constant YoY ratio, while the largest division experienced a 6% decrease in the ratio (even thought the ratio remained greater than 1).

#2

I don’t recall properly. But I think the rule was a ratio less than 1 meant contracting division, while more than 1 meant expanding.

The trend doesn’t matter if they are depreciating more assets than they are replacing.

#3

^ Got it. Thanks. I guess I’m looking for too many tricks.