Cash Conversion Rate Calculator
Compare net cash from operating activities with net profit after tax for the same reporting period.
Statement figures
Use the operating subtotal from the cash flow statement.
Use profit or loss after tax from the income statement.
Reporting periods
Use matching labels for matching dates.
Results
Cash conversion
75%
Cash conversion ratio
0.75 times
Operating cash less net profit
-$30,000
Enter signed amounts for the same entity, period, currency and unit.
Calculate Operating Cash Against Profit
Cash conversion rate is net cash from operating activities divided by net profit after tax for the same entity and period. Multiply the ratio by 100 to get the percentage.
Take the net operating cash subtotal from the cash flow statement and after-tax profit or loss from the income statement. Use the same reporting currency and scale for both. If one statement uses thousands of dollars, convert it to dollars before entering its figure.
Keep the minus sign for an outflow or loss. Use net cash from operating activities as reported. Sales receipts cover only part of operating cash, and free cash flow makes a further deduction for capital spending. After-tax profit includes expenses such as interest, depreciation and tax that EBITDA leaves out.
Work Through a Cash Conversion Example
In the hypothetical example, divide $90,000 of operating cash by $120,000 of net profit after tax. Cash conversion is 0.75 times, or 75%. Separately, $90,000 less $120,000 gives -$30,000.
Unpaid customer invoices can lift receivables and leave operating cash below profit. Paying for stock before it sells can have a similar effect. Leaving supplier bills unpaid can hold cash in the business until those payables fall due. Depreciation can lower profit without a cash payment in that period.
Two totals show the size of the gap. To see what drove it, use the cash flow reconciliation or check the movements behind the totals. The AASB 107 cash flow standard describes the adjustments used in the indirect method.
Interpret Low, High and Undefined Results
When both inputs are positive, a ratio below 1 means operating cash was lower than profit for the period. Cash exceeds profit when the ratio is above 1. The ratio has no universal pass mark. Check whether the difference repeats across comparable periods or comes from the timing of payments.
Zero profit makes the ratio undefined, although the dollar difference still applies. A loss or an operating cash outflow calls for reading the signed figures together. For example, -$30,000 of operating cash divided by a -$60,000 loss gives 0.5 times, or 50%, even though operations used cash.
Debt service coverage measures the funds available to make principal and interest payments. The cash conversion cycle measures how many days cash is tied up in stock and receivables after allowing for supplier payment terms.
