What pushes the ratio below 100%
- CapEx materially above D&A (growth phase or replacement cycle).
- Working capital build (receivables and inventory growing faster than payables).
- Cash tax payments above book tax (deferred-tax wedge reversing).
What pushes it above 100%
- D&A above maintenance CapEx (asset-light or post-investment runoff).
- Working-capital release (inventory liquidation, receivables collections).
- Deferred revenue building (SaaS, subscription-heavy firms).
Diligence interpretation
Private-equity diligence teams use the 5-year average of FCF / NI. The CFA Institute's earnings-quality refresher reading frames the cutoff at 80% as a diagnostic flag, not a binary verdict[CFA Inst].