operating cash flow to sales ratio

Definition

The operating cash flow to sales ratio assesses how effectively a company’s core operations generate cash relative to its net revenue. It is calculated by dividing operating cash flow by net sales. A higher ratio indicates that a larger portion of sales translates into cash, reflecting strong earnings quality and efficient working capital management. A lower ratio may signal that reported profits rely heavily on non‑cash items or that cash is tied up in receivables and inventory. Investors and analysts monitor this ratio over time and against industry peers to gauge the sustainability of cash generation, which supports capital expenditures, debt repayment, dividends, and reinvestment without relying on external funding sources.

See also