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Cash conversion

The ratio of cash flow to profit: how much of what was earned on paper reached the company's accounts.

Formula

Cash conversion=Operating cash flowProfit

Stored as a fraction of one rather than a percentage. Numerator and denominator are taken for the same period and under the same reporting standard.

How to read the number

Persistently low conversion means profit is settling in inventory and receivables rather than in cash.

When the metric lies

Also known as: cash conversion ratio

Related terms