What is the Sales to Cash Flow Ratio?
The sales to cash flow ratio measures the level of a company's sales against its total cash flow.
How Does the Sales to Cash Flow Ratio Work?
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 Does the Sales to Cash Flow Ratio Matter?
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.