Operating cash flow to sales
In one sentenceNet cash flow from operating activities divided by net sales, showing how much of every riyal of sales turns into actual cash.
Simply put
Net profit margin tells you how much you earned on paper; this ratio tells you how much actually came into your till from every riyal you sold.
If it is much lower than the net profit margin for several years in a row, your profits are tied up in inventory or with customers.
Worked example
A distribution company has sales of 3,000,000 SAR, and net cash flow from operating activities in the statement of cash flows of 240,000 SAR.
Net operating cash flow240,000 SAR
Net sales3,000,000 SAR
Ratio = 240,000 ÷ 3,000,0008%
Formula: Net operating cash flow ÷ net sales × 100
Don't confuse it with
Net profit marginIt measures profit on the accrual basis; this ratio measures cash actually received.