Fundamental Glossary / Cash Flow Metrics
Cash Conversion Efficiency
How effectively profit, or sales, is turned into operating cash flow. A broader name for the cash conversion idea.
Formula
Operating cash flow / EBITDA, or operating cash flow / revenue, depending on the author. State the formula.
What it means
Efficiency here is not the factory's efficiency. It is the treasury fact of collection. A business that earns a rupee and collects a rupee converts well.
The term sits beside the cash conversion ratio. Use one definition and keep it for the history.
How to read it
High efficiency with stable margins is the combination you want. High efficiency from a one-time release of working capital will fade.
What to watch
Selling receivables to a financier can make conversion look excellent while the company pays a fee and may still bear the credit risk. Read the note on derecognition of receivables.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.