Profit can rise while cash is tied up in stock, unfinished work and unpaid invoices, or spent on assets and debt repayments. Separate planned investment from avoidable delay, then put a cash amount, an action and a date against the gap.
Did the cash fail to arrive, or did we choose to spend it?
Start with two separate questions.
Did profit turn into operating cash? A sale may count as revenue before the customer pays. Buying stock can absorb cash before that stock becomes an expense. Non-cash items can also move reported profit without adding money to the bank account. Under IAS 7, the indirect method adjusts profit for changes in inventories and operating receivables and payables, as well as non-cash and investing or financing items.[3]
Where else did cash go? Identify cash spent on equipment, acquisitions, dividends or debt repayments. These can reduce the bank balance even when operations generate cash. A lower closing cash balance does not, by itself, prove poor cash collection.[3]
Ask management to explain the movement from profit to operating cash, then from operating cash to the closing cash balance. Include tax payments and other material cash movements. Otherwise, the team may chase receivables when the main reason cash fell was an approved investment.
Growth needs funding. But is the requirement getting heavier?
A business that pays suppliers and staff before collecting from customers has a gap to finance. More orders can make that gap larger even when stock moves just as quickly and customers pay on time.
That is different from needing more cash because stock sits longer, production stalls or customers take extra weeks to pay.
Separate the cash needed for more business from the cash needed because the business is moving more slowly.
Also check prices and terms. More expensive materials, longer customer credit or reduced supplier credit can increase the funding requirement without any rise in physical sales volume.
Nor is every growth requirement temporary. If the business stays larger, part of its working-capital requirement may stay larger too. It needs funding that lasts as long as the requirement, rather than an assumption that all the cash will shortly return. Working-capital analysis therefore has to consider both liquidity and the operating cycle, not just the year-end balance.[6]
What does this look like in a Malaysian PLC?
Cropmate Berhad's FY2025 annual report shows revenue rising 22.3% to RM196.5 million and profit after tax rising from RM11.9 million to RM14.7 million. Yet net cash from operating activities fell from RM15.3 million to RM3.4 million.[5]
Management attributed the lower operating cash flow mainly to higher working-capital requirements, including a RM10.9 million increase in inventories and additional receivables. It linked these movements to higher sales volumes and procurement intended to secure raw materials. Investing and financing outflows separately reduced the closing cash balance further.[5]
This example is used only to show the cash-flow mechanism. It is not an assessment of Cropmate's broader financial position or management.
Where should management look first?
Use a Cash Pressure Check. Turn each balance into an operating question, not just a ratio.
Unpaid invoices
Check collection days, overdue amounts and disputed invoices.
Ask: Are customers paying later, or are errors and disputes stopping payment?
Stock and factory work-in-progress
Check stock days and ageing, split into materials, unfinished goods and finished goods.
Ask: Is the cash supporting demand, or waiting behind a production or sales bottleneck?
Project work not yet billable
Check contract assets, their age and outstanding billing milestones.
Ask: What must happen before we have an unconditional right to bill, and who owns that step?
Supplier payments
Check actual payment days against agreed terms.
Ask: Have terms shortened, or are we paying early without enough benefit?
Borrowing
Check the amount drawn, interest cost and usable facility headroom.
Ask: Is debt funding planned expansion, or repeatedly covering missed cash forecasts?
Factory work-in-progress is part of inventory. Contract assets are different: under IFRS 15, they represent a right to consideration for goods or services already transferred where that right is still conditional on something other than the passage of time. Do not count the same balance twice.[4]
For a conventional stock-based business, the cash conversion cycle is inventory days plus customer collection days, minus supplier payment days.[6] Project businesses also need to track the wait before billing; a receivables report alone may miss it.
Compare the same seasonal period, use average balances where possible and check changes in business mix. A year-end snapshot can mislead. Compare against the company's own history and relevant peers rather than relying on a single universal target.[6]
What can ten extra days tie up?
Ten extra days. RM13.56 million more working capital.
Illustration: A company makes RM495 million of annual credit sales. Customers take ten additional days to pay, on average.
RM495 million ÷ 365 × 10 ≈ RM13.56 million in additional receivables and funding requirement.
If that additional balance persists for a full year and is entirely debt-funded at an illustrative 6% annual rate, the financing cost is approximately RM814,000 a year.
The 6% rate is an assumption, not a market benchmark. RM13.56 million is additional working capital required under the stated assumptions, not profit lost.
Test your own collection, inventory and supplier-payment days in Materiality Check →
The opportunity is not necessarily to collect every invoice ten days earlier. It is to identify which delays can be removed without sacrificing profitable customers or offering discounts that cost more than the funding saved.
Is this planned investment or a warning sign?
An inventory build is easier to defend when it supports credible demand, protects against a known supply risk and has a clear consumption plan. Longer customer credit may be worthwhile when the additional margin covers the funding cost and credit risk.
Concern rises when balances keep ageing, billing milestones repeatedly slip or management cannot explain when cash will arrive. These are reasons to investigate, not proof that every affected balance is unrecoverable.
Be equally careful with apparent improvements. Delaying supplier payments can lift cash today while risking supply disruption or lost discounts. Cutting essential stock can release cash while losing sales. A better cash number is not enough if the operating consequences make the business weaker.
What should happen at the next management meeting?
Bring finance, sales, purchasing and operations into the same discussion. Finance can report the cash gap. It cannot resolve every delivery dispute, production delay or purchasing decision behind it.
Ask for a one-page explanation of the three largest cash pressures. For each, require the amount, the operating cause, the person responsible and the next decision. Where cash recovery is expected, add the expected collection or release date and the evidence behind it.
Separate cash that can realistically be released from cash needed to sustain the business. Do not present the entire receivables or inventory balance as a savings opportunity.
Then test the funding plan against a delay in the largest expected receipt. Which payments fall due first? How much available cash and usable borrowing capacity remain?
The owner's question is not simply, "Why is cash down?"
It is: "Which part was planned, which part can we change, and who is doing what next?"
If profit keeps improving but cash keeps tightening, it is worth examining what sits between the reported result and the bank balance.
Source notes
Deloitte Southeast Asia, Southeast Asia CFOs stay confident in their own businesses despite mounting global uncertainty, 2 July 2026. The survey included 74 CFOs across Brunei Darussalam, Indonesia, Malaysia, the Philippines, Thailand and Vietnam. https://www.deloitte.com/southeast-asia/en/about/press-room/southeast-asia-cfos-confidence-global-uncertainty.html
Bank Negara Malaysia, Financial Stability Review: Second Half 2025, Credit Risk. BNM reported persistent cost pressure and noted tighter inventory management and supplier renegotiation among firms' responses. https://www.bnm.gov.my/publications/fsr2025h2/ch1b
IFRS Foundation, IAS 7 Statement of Cash Flows. Basis for distinguishing operating, investing and financing cash flows and for adjustments from profit to operating cash flow under the indirect method. https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/
IFRS Foundation, IFRS 15 Revenue from Contracts with Customers. Basis for the distinction between revenue recognition, receivables and contract assets. https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/
Cropmate Berhad, Annual Report 2025, pp. 5 and 22, available from the issuer's Annual Report page. Figures are rounded to one decimal place in millions. The working-capital explanation is management's account. https://www.cropmate.com.my/annual-report/
CFA Institute, Working Capital and Liquidity (2026 curriculum) and Financial Ratio List. Basis for cash-conversion-cycle analysis and the use of inventory, receivable and payable days in liquidity analysis. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/working-capital-and-liquidity https://www.cfainstitute.org/sites/default/files/-/media/documents/support/programs/cfa/cfa_program_level_ii_financial_ratio_list.pdf Sources checked on 22 September 2026. The ten-day illustration is an author calculation using hypothetical inputs, not company data.