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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