Cash Conversion
Short definition
Cash conversion is how much of accrual profit (often EBITDA) becomes operating cash. Below 1 is an NWC, provision or earnings-quality problem.
Detailed explanation
The bank wants conversion in the CFADS bridge. Low conversion detaches debt capacity from an EBITDA multiple.
CCC days are the time dimension of conversion; the ratio is a period stock. Conversion falls in a growth year — drag.
Why it matters for the CFO
High EBITDA with low conversion cannot carry dividends and debt service. If the bonus looks at EBITDA and treasury at cash, the conflict is here.
How it is calculated
Nakit dönüşüm ≈ faaliyet nakit akışı / FAVÖK (tanım sözleşmeye göre kilitlenir)
The numerator may be IAS 7 operating cash or pre-bank CFADS. Without a locked definition the ratio cannot be compared.
Variables in the formula
- CCR: cash conversion ratio
How to read it
Sustainable conversion depends on sector NWC; there is no universal 80% rule. A destocking year inflates conversion.
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Definitions are educational. They are not investment, credit or tax advice.