FCF Conversion
A diagnostic ratio computed as Free Cash Flow divided by Net Income. A multi-year average above 1.0 indicates the business converts every dollar of accounting profit into more than a dollar of actual cash, characteristic of mature consumer staples, asset-light services, and high-quality software. A multi-year average below 0.5 indicates that half the reported earnings never reach cash form, characteristic of capital-intensive industrials and a flag for software companies that should be running well above 1.0. The trend matters more than the absolute level — a declining conversion ratio with stable reported earnings is usually the earliest signal of earnings-quality decay, often visible one to three quarters before the income statement itself rolls over.
Lessons that use this term
Related terms
Accounts Payable · Adjusted EBITDA · Adjusted EBITDA Ex-SBC · ADR · ARPU · Average Length Of Stay
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