Cash conversion
Also called: cash conversion ratio, cash conversion rate
Operating cash flow divided by net profit, showing how much of reported profit turns into cash.
Measured over several years, cash conversion near or above 100% suggests profits are backed by cash. Persistently low conversion can come from fast growth tying up working capital, or from weak earnings quality, and needs explaining.
Example
Operating cash flow of ₹180 crore against net profit of ₹500 crore over five years is cash conversion of 36%.
Learn more in these lessons
- Quality of earningsHow can you tell whether a company's reported profit is reliable?
- Free cash flow and cash conversionWhat is free cash flow, and why do investors care about it?
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