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Definition

<p style="text-align: justify;">The <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">ratio</span> of operating <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">cash flow</span> to <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">EBITDA</span> (earnings before <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">interest</span>, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">taxation</span>, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">depreciation</span> and <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">amortisation</span>). This ratio shows how effective a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span> is at converting its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">profits</span> into <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">cash</span>. A bad ratio can indicate a problem with <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">working capital</span> - such as a worsening <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">bad debt</span> ratio or a slower <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">stock</span> turn. Bad working capital <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">management</span> means that the company is operating inefficiently at a management level. This will be apparent from a deterioration in ratios like the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">stock turn ratio</span> or the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">debtors days outstanding ratio</span>.</p>