Operating Cash Flow / Sales Ratio

Key Question

How efficiently are sales converted into cash?

Operating Cash Flow - Sales Ratio-2

This ratio, which is expressed as a percentage, compares a company’s operating cash flow to its net sales or revenues, which gives an indication of the company’s ability to turn sales into cash.

Changes in a company’s terms of sale and / or the collection promptness of its accounts receivable will show up in this indicator.

Formula:
OCF / Sales Ratio = Operating Cash Flow / Net Sales

The greater the amount of operating cash flow, the better. There is no standard guideline for the operating cash flow / sales ratio, but obviously, the ability to generate consistent and / or improving percentage comparisons are favourable investment qualities.