What is free cash flow conversion?
Free cash flow conversion is the ratio of free cash flow (or FCF) to net income. FCF conversion is important because it measures the quality of a company's earnings. It is generally thought that earnings are easier to manipulate by the management than FCF.
If FCF conversion is <100%, it could imply a slowdown in the forward earnings growth due to increasing capital intensity, high working capital, or restructuring charges:
- In accounting, depreciation is used to smooth out lumpy CapEx because CapEx generates benefits over many years. Thanks to