Cash Conversion Ratio (CFO / Net Income)

This indicator measures how effectively a company converts its accounting profits into cash generated from core operations. It is calculated as:

Cash Conversion Ratio = Operating Cash Flow (CFO) ÷ Net Income

A value around 1.0 (or 100%) generally indicates strong earnings quality, meaning reported profits are broadly supported by operating cash inflows. Values above 1.0 suggest operating cash flow exceeds net income, while values below 1.0 may indicate weaker cash conversion, often due to working-capital changes (e.g., receivables, inventory) or other timing effects. Negative or near-zero net income can make the ratio volatile or less interpretable.