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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Cash conversion (ratio)

What is cash conversion, and what does a lender read in it?

ONE OF 209 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Cash conversion is operating cash flow as a share of EBITDA, or of net profit: how much of the profit a business reports arrives as cash. A company with EBITDA of US$10m and operating cash flow of US$6m converts 60%. A lender reads the trend more than the level, since a ratio falling year after year while profit rises usually means cash is being absorbed by debtors, stock or capitalised costs, and a loan is repaid from the cash, not the profit.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Not the cash conversion cycle, which counts the days money is tied up in working capital. A lengthening cycle is one of the commonest reasons the ratio falls.

// WORKED IN

// NEXT TO IT

READING THE NUMBERS

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