Cash conversion cycle

The number of days between paying for inventory and collecting the cash from selling it. Inventory days plus receivable days minus payable days.

A distributor holding 73 days of stock, collecting in 49 days and paying suppliers in 51 days has a 71-day cycle. Every rupee of sales growth requires 71 days of funding before it comes back.

The measure is powerful because it can go negative. A supermarket sells for cash in a fortnight and pays suppliers in 60 days, so its cycle is around minus 45 days and growth generates cash rather than consuming it. That structural difference, rather than any margin advantage, is most of why retail can expand quickly on modest capital, and why the same expansion in a capital-goods business needs a rights issue.

Track it quarterly. It deteriorates before profit does.