Cash conversion cycle: What profits don't tell you

Summary: Why do some companies sit on piles of cash despite thin margins, while others struggle even after reporting profits? The answer often lies in the cash conversion cycle, a powerful but underused metric that shows how efficiently a business turns sales into cash. In our previous story, we examined why cash conversion matters through the example of Ruchi Soya, a company that reported profits on paper but struggled to turn those profits into cash. That naturally leads to the next, closely related idea: the cash conversion cycle. At its simplest, the cash conversion cycle tells you how long a company’s money stays locked inside the business before it finds its way back. It is one of the easiest ways to see how efficiently a company runs its day-to-day operations. Let’s start with the basics. The formula, in plain English Cash conversion cycle = Debtor days + Inventory days − Payable days Think of this as a timeline rather than a formula. First, the company sells its product but doesn’t always get paid immediately. That waiting period shows up as ‘debtor days’. Next, the company holds raw materials or finished goods before they are sold—this is the ‘inventory days’. Finally, the company itself doesn’t pay suppliers right away. That delay works in its favour, which is why ‘payable days’ are subtracted. Put these three all together and the cash conversion cycle answers one simp

This article was originally published on January 13, 2026.