Cash generating efficiency
/What is Cash Generating Efficiency?
Cash generating efficiency is the ability of an organization to consistently produce cash flows from its ongoing operations. A high level of cash generating efficiency indicates that a business is consistently able to spin off cash from its operations, which can be used for reinvestment in the business, debt repayments, or dividend payments to investors. The cash generating efficiency of an organization can be evaluated in terms of the amount of sales or total assets needed to generate the cash.
A business is more likely to exhibit a higher degree of cash generating efficiency when it operates in a market where sales are steady and the level of competition is relatively low, usually due to high barriers to entry. Conversely, a business that operates within an industry with short product cycles and low barriers to entry is more likely to have a reduced level of cash generating efficiency, since competition is more intense.