Operating Cash Flow to Sales Ratio

Operating Cash Flow/Sales Ratio compares a company's operating cash flow to its net sales revenue. This ratio, expressed as a percentage, shows the ability of a company to generate cash from its sales. The higher the ratio, the better a company is.

Formula:
Operating cash flow / Sales Ratio = (Operating Cash Flows / Net Sales) * 100%

Learn how to calculate the ratio with the following example:

Silver Electric Ltd has the following information for the year ended 31 December 2010:
Sales $2,300,000
Sales returns $300,000
Operating income $1,000,000
Depreciation $500,000
Taxes $100,000

Then,
Operating cash flow = Operating income + Depreciation - Taxes = 1,000,000 + 500,000 - 100,000 = $1,400,000
Net Sales = Sales - Sales returns = 2,300,000 - 300,000 = $2,000,000
Operating cash flow / Sales ratio = 1,400,000 / 2,000,000 = 0.7
This means that cash generated for each dollar of sales is $0.70.

* Next: How to Calculate Price to Cash Flow Ratio
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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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