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Cash flow to sales ratio definition

Description

Cash flow to sales ratio shows the amount of operating cash flows per one dollar of sales. In short, it represents a company’s ability to turn its’ sales into cash. Data to calculate this ratio is collected from income and cash flow statements.

This ratio is important to the company’s investors, as they are interested in how efficiently company’s sales turn into cash. It is worth mentioning that increasing trends of cash flow to sales ratio might indicate a better performance in debts’ management.

Norms and limitations

The higher value of this ratio, the better it is for the company.

It is recommended to compare this ratio to those of the companies, working within the same industry.

Formula

Operating cash flow (OCF, cash flow from operations) is the money that a company earns from its’ core business.

Net sales (revenues, sales) can be described as sales deducting returns and discount for customers.