DEFINITION of 'Sales To Cash Flow Ratio'
A comparison of a company's sales to its cash flow. The sales to cash flow ratio is expressed on a per-share basis and is calculated by dividing sales per share by the cash flow per share:
Sales to Cash Flow Ratio =
Sales Per Share_____
Cost Flow Per Share
Higher ratios are more favorable and are indicative of positive financial strength within a company. The sales to cash flow ratio is an important metric for measuring financial strength, because it takes into consideration the company's output (sales) as the primary means of inbound cash flow.
BREAKING DOWN 'Sales To Cash Flow Ratio'
The two metrics used in the sales to cash flow ratio are sales per share and cash flow per share. Sales per share (also known as revenue per share) is a ratio that computes the total revenue earned per share throughout a 12-month period. It is calculated by dividing total revenue earned (in a fiscal year) by the weighted average of shares outstanding (for the same fiscal year):
Sales Per Share =
Average Shares Outstanding
A company's cash flow per share is another measure of financial strength that is calculated by subtracting preferred dividends from operating cash flow and dividing the difference by common shares outstanding:
Cash Flow Per Share =
(Operating Cash Flow - Preferred Dividends)
Common Shares Outstanding