A ratio near or above 100% means profit is real and collected. A ratio that sits at 60% year after year means something structural absorbs the difference, usually working capital growth or capitalised costs, and the reported profit overstates what owners can take out.
One weak quarter means little; a three-year average is the useful number. Persistent underconversion is one of the most reliable earnings-quality warnings available from public filings.
Example: Northwind Tools converts $164M of operating cash flow from $195M of EBITDA, 84%. On the free cash flow measure, $89M against $78M of net income is 114%, flattered by the payables stretch.
Related: operating-cash-flow, earnings-quality, free-cash-flow, ebitda, accruals-ratio