FCF conversion shows how much reported profit actually turns into cash.
What it is
Free cash flow conversion measures how much of a company's reported profit actually becomes free cash flow. It is usually shown as a percentage, comparing FCF against net income or against EBITDA. A high ratio means earnings reliably translate into spendable cash.
Why it matters
This ratio is a quality-of-earnings check: a business that converts most of its profit into cash is usually more durable than one whose earnings stay locked up in receivables, inventory, or heavy capital spending. Consistently low or volatile conversion can hint at aggressive revenue recognition or rising working-capital needs. Be aware the result depends on which denominator (net income or EBITDA) is used.
How it's calculated
Divide free cash flow by net income (or by EBITDA) over the same period and express it as a percentage. There is no single fixed convention, so check which base figure is being used.
How Quintarthai uses it
You can read the underlying free cash flow and earnings figures from the Financials tabs on a stock's company page to gauge how well profit converts to cash.
Cross-border note. Comparing conversion across a Canada/US pair requires matching the accounting basis, since IFRS vs US GAAP differences in both the cash flow statement and net income can shift the ratio.
FAQ
What is a good free cash flow conversion rate?
There is no universal target, but mature businesses that convert roughly 80% or more of net income into FCF are often considered cash-efficient; capital-intensive firms naturally convert less.
Can conversion be above 100%?
Yes — large non-cash charges like depreciation or releasing working capital can push FCF above net income, producing conversion over 100% in a given period.
Check your understanding
Why can free cash flow conversion sometimes exceed 100% in a given period?
Big non-cash add-backs such as depreciation, or a release of working capital, can make FCF larger than net income, producing conversion over 100%.