A company can report accounting profit while cash remains tied up in receivables or inventory. For a growing issuer, working-capital requirements can determine whether expansion creates cash, needs continuous funding or increases balance-sheet pressure.
Reconcile profit and operating cash flow
Compare profit after tax with cash generated from operations across several periods. One year can be distorted by timing, so look for persistent gaps and read the reconciliation.
Track the operating cycle
Receivable days, inventory days and payable days help describe how long cash remains inside the operating process. Industry norms and seasonality matter when interpreting them.
- Receivables
- Inventory
- Payables
- Cash conversion cycle
Connect growth with funding
Fast sales growth can require more inventory and customer credit. Review whether operating cash, debt or IPO proceeds are expected to fund this need and how sensitive the plan is to slower collections.
Read use of proceeds and risk together
A working-capital allocation can support growth, but it should be assessed with concentration, bargaining power and historical cash conversion. Capital raised does not remove the underlying operating risk.
Build a multi-period cash conversion table
Compare revenue, operating profit, profit after tax, cash from operations, receivables, inventory and payables for every disclosed period. Convert balances into days only with a consistent formula and note when seasonality limits the comparison.
Identify whether working-capital pressure is growing faster than sales and whether customer or supplier concentration can explain the movement.
- Operating cash versus profit
- Receivable days
- Inventory days
- Payable days
Stress-test the funding requirement
Estimate how slower collections, higher inventory or weaker margins could change the need for capital. Compare that scenario with fresh-issue proceeds, available borrowing and the company's historical ability to generate cash.
A stress test is not a forecast. It shows whether the business and issue structure have room if the assumptions in the base plan are not achieved.
- Base working-capital need
- Slower collection scenario
- Available funding
- Residual liquidity risk