CASH & WORKING CAPITAL
Profitable, but short of cash?
A growing order book can leave a business with less money in the bank. Use a simple bridge to identify where cash is going before choosing the remedy.
THE SHORT ANSWER
Profit records performance under accounting rules; bank cash also reflects collection and payment timing, investment, borrowing and owner transactions. Reconcile the movement, then investigate its largest drivers.
Start with one period and one question
Choose a closed month. Record opening and closing bank balances on the same basis, with all relevant accounts reconciled. Then ask: which transactions explain the change? A profit report alone cannot answer that question.
Keep currencies separate until you have a documented conversion basis. For a GCC business buying in one currency and selling in another, exchange differences and transfer timing can obscure the operating picture. Do not treat restricted balances or undrawn facilities as freely available cash.
A worked cash bridge
The fictional business below reports OMR 20,000 profit, yet its bank balance falls by OMR 2,000. All figures are for the same month. Interest and tax are already reflected in profit and paid in the month; there are no other adjustments.
| Movement | Cash effect |
|---|---|
| Opening bank cash | 50,000 |
| Profit for the month | +20,000 |
| Add non-cash depreciation | +3,000 |
| Increase in receivables | −12,000 |
| Increase in inventory | −8,000 |
| Increase in trade payables | +5,000 |
| Equipment paid for | −6,000 |
| Loan principal repaid | −4,000 |
| Closing bank cash | 48,000 |
50,000 + 20,000 + 3,000 − 12,000 − 8,000 + 5,000 − 6,000 − 4,000 = 48,000. This example is invented for explanation; it is not a client result.
Investigate the cause before chasing the ratio
A receivables increase might reflect sales growth, an invoice awaiting acceptance, a dispute, or overdue collection. Each requires a different action. Split the ledger by customer, due date, disputed status and the next accountable action. Do the same for stock: separate usable inventory from obsolete, reserved or slow-moving items.
For a trading business, the cash operating cycle is inventory days plus receivables days less payables days. For example, 60 + 45 − 30 = 75 days. Use average balances and consistent period definitions. Credit-sales and credit-purchases denominators matter; total sales or cost of sales can be misleading proxies. Project, advance-payment and seasonal businesses need additional analysis.
There is no universal good target. Compare contractual terms, seasonality, service requirements and supplier reliability. Paying suppliers late can create supply disruption or contractual costs; an apparent improvement in days may damage the business.
Turn the bridge into a weekly decision
- Assign the largest driver. Name the invoice, stock line or payment causing the issue, together with the person who can resolve it.
- Separate timing from loss. A late payment, doubtful debt and permanent margin shortfall are different problems.
- Build a short cash forecast. Use realistic receipt dates and committed payments. Include payroll, tax, debt and capital expenditure with explicit assumptions.
- Test a downside. Move a major expected receipt to a later week and identify the resulting funding gap before committing further cash.
- Reconcile next week. Compare expected and actual receipts. Record what changed and update the decision.
The worksheet is a management aid, not an IAS 7 financial statement. Accounting classification, financing arrangements and local obligations require a separate assessment.
TAKE THE NEXT STEP
Use the worksheet.
Open the worksheet, type your notes in the fields and use your browser’s Print command to keep a PDF or paper copy. Calculations are manual. Entries stay in your browser and are not submitted to Mizwala; reload or close without saving and they may be lost.
Questions worth checking
Does higher profit always improve cash?
No. Sales may remain uncollected while inventory, investment or debt repayments absorb cash. Reconcile the actual movements for the same period.
Should I just reduce receivable days?
First find the cause. Correct an invoicing or acceptance problem, resolve disputes and use agreed collection terms. A single ratio can conceal concentration and overdue balances.
Sources & scope
Primary references checked on 4 November 2026. The calculations, examples and workflow suggestions are Mizwala’s educational illustrations; the linked organisations do not endorse this guide.
This is general management information. Adapt it to your circumstances and obtain appropriate professional advice before relying on it for a material decision.