cash-realization ratio

A financial ratio that is used in the telecom industry, among others. It is calculated by dividing cash flow from operating activities by net income. It measures how close a company’s net income is to being realized in cash. Cash flow from operating activities is taken from the statement of cash flows. The net income figure is taken from the income statement. Companies that are less risky have cash realization ratios that exceed 1.0, indicating that income may not be dependent on non-cash sources such as mark-to-market accounting valuations, which can be affected by aggressive valuation decisions by management. This ratio is considered a good measure of earnings quality. Cash-realization ratio is calculated by dividing cash flow from operating activities by net income.