Cash conversion and free cash flow
How much accounting profit becomes distributable cash.
Cash conversion and free cash flow
| Concept | Explanation | |---|---| | Cash conversion | Extent to which accounting earnings become operating cash flow. | | Free cash flow margin | Free cash flow divided by revenue. | | Capital intensity | Amount of capital expenditure required to maintain or grow operations. | | Working-capital drag | Cash absorbed by receivables, inventory, or other operating balances. | | Maintenance capex | Spending needed to sustain current operations. | | Growth capex | Spending intended to expand future capacity. |
Free cash flow is not automatically distributable. Companies may need cash for debt repayment, acquisitions, working capital, regulation, or resilience.