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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Sales to Cash Flow Ratio

What it is:

The sales to cash flow ratio measures the level of a company's sales against its total cash flow.

How it works (Example):

Expressed on a per-share basis, the sales to cash flow ratio is calculated by dividing a company's sales volume per share in a given period by its per-share cash flow.

Higher ratios are preferable as they indicate increasing levels of financial strength.

For instance, if a company generates $1,000 in sales per share in a given period accompanied by a per-share cash flow of $250, its sales to cash flow ratio would be 4 ($1000 in sales / $250 cash flow = 4).

Why it Matters:

Unlike many metrics used for measuring financial strength, the sales to cash flow ratio accounts for the company's output (sales) as the principle mechanism for inbound cash flow.

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