Profitability · updated October 21, 2026
What is the cash conversion ratio and how is it calculated
The cash conversion ratio shows how much of reported profit turns into cash actually collected. Above 100% means the company collected more cash than the profit in its accounts: a sign of solid profit.
Cash conversion formula
- Cash from operations
- Money received from the business over the last 12 months.
- Net profit
- Accounting profit over the same period.
Worked example
A company reports a profit of $2 billion and brings in $2.4 billion from operations.
Profit is backed by real cash, with 20% to spare (usually from depreciation).
How to read cash conversion
Weak conversion for several years is a warning sign: profit may be pushed up by sales on credit that never get collected.
When cash conversion can fool you
A single year: a large tax payment or a big inventory order lowers conversion for a while.
Related terms
Questions about cash conversion
Why can profit be higher than cash?
Because a sale counts as profit when the invoice goes out, not when the money arrives. If customers pay late, the cash lags behind.
These explanations are for information only. They are not a recommendation to buy or sell.
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