Cash Conversion
Does reported profit translate into actual cash?
Definition
Cash Conversion measures how much of a company's net income is backed by operating cash flow. It is the simplest check on earnings quality.
Formula
Only meaningful when Net Income > 0.
Interpretation
| Range | Assessment |
|---|---|
| > 100% | Excellent — cash flow exceeds reported profit |
| 80% – 100% | Good — most earnings backed by cash |
| < 80% | Warning — significant non-cash component in earnings |
| < 0% | Red flag — reporting profits while burning cash |
In Finsco
Computed by the audit earning-quality command.
audit earning-quality
Related Metrics
- Accruals Ratio — (NI − OCF) / Total Assets
- FCF Conversion — stricter version including CapEx