Certified Financial Management Specialist Practice Exam

Which ratio indicates cash generated per sales dollar?

1. Operating Cash Flow/Net Sales

2. Comprehensive Free Cash Flow

3. Accounts Receivable Turnover

4. Current Ratio

The correct answer is: Operating Cash Flow/Net Sales

The ratio that indicates cash generated per sales dollar is determined by dividing operating cash flow by net sales. This ratio provides insights into how effectively a company is turning its sales into actual cash flow from operations. A higher ratio signifies that the business is able to generate more cash from each dollar of sales, indicating strong operational efficiency and effective cost management. This ratio is particularly important for assessing a company's liquidity and its ability to meet short-term obligations since it reflects the actual cash that can be used for business activities, unlike net income, which may include non-cash items. By analyzing this ratio, stakeholders can evaluate the quality of a company's earnings, as it shows how well sales translate into real cash, which is essential for sustaining operations and funding growth.