Definition
Operating cash conversion compares operating cash flow to operating profit to show how much profit turns into cash.
Formula
Operating cash conversion = operating cash flow / operating profit
Example
Operating cash flow $800k and operating profit $1M yields 80%.
How to use it
- Low conversion often points to receivables or deferred revenue shifts.
- Track conversion by quarter to catch working capital stress early.
Common mistakes
- Using net income instead of operating profit in the denominator.
- Comparing periods with different revenue recognition policies.
Measured as
Operating cash conversion = operating cash flow / operating profit
Misused when
- Using net income instead of operating profit in the denominator.
- Comparing periods with different revenue recognition policies.
Operator takeaway
- Low conversion often points to receivables or deferred revenue shifts.
- Track conversion by quarter to catch working capital stress early.
- Tie Operating Cash Conversion to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Operating Cash Conversion belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.