# FCF-to-Net-Income Ratio

Free cash flow divided by net income — a quality-of-earnings indicator.

## Definition

The FCF/Net Income ratio measures how much of reported earnings actually shows up as cash. A ratio near 1.0x indicates earnings of high cash quality; a ratio persistently below 0.5x suggests either heavy reinvestment or earnings of dubious quality.

## Formula

Free Cash Flow ÷ Net Income

## Why it matters

Reported earnings can be inflated by accruals, aggressive revenue recognition, or capitalising costs. Cash flow is much harder to fake. The ratio between the two is one of the cleanest tests of earnings quality.

## How Standard Equity uses it

Shown in the main financial table for non-bank companies. Replaced by NII Growth in bank reports — banks' FCF concept doesn't translate.

## The metric

| Category | Cash Flow |
| -------- | --------- |
| Unit     | x         |

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