Cash conversion
The ratio of cash flow to profit: how much of what was earned on paper reached the company's accounts.
Formula
\text{Cash conversion} = \frac{\text{Operating cash flow}}{\text{Profit}}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
With negative profit the ratio is meaningless, and in individual periods a large prepayment or a tax refund distorts it.
Also known as: cash conversion ratio