Cash Conversion Cycle Explained: Why Maruti Beats TCS on Working Capital | Quick ₹eads

by Karnivesh | 23 January 2026

A CFO watches his company report ₹500 crores in revenue and ₹50 crores in profit. Numbers look great on the income statement. But when he checks the cash balance, it's lower than expected. Why? Because ₹200 crores are locked in customer receivables waiting to be collected. Another ₹150 crores sit in inventory waiting to be sold. Meanwhile, suppliers demand payment within 45 days. The company is profitable but starved for cash.

This is the reality of the cash conversion cycle a metric that reveals why some profitable companies thrive while others struggle for liquidity, and why Maruti Suzuki's working capital is far more efficient than TCS, despite TCS generating 10x more revenue.

What is the Cash Conversion Cycle?

The cash conversion cycle measures the number of days between when a company pays cash for inventory and when it collects cash from customers for selling that inventory. It's calculated using three components:

CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO)

Think of it as a journey: a company buys raw materials (paying suppliers), converts them into products (holding inventory), sells the products to customers (who take time to pay), and finally collects the cash. The cash conversion cycle measures the total time of this journey.

• DIO (Days Inventory Outstanding): How many days inventory sits before being sold

• DSO (Days Sales Outstanding): How many days customers take to pay

• DPO (Days Payable Outstanding): How many days before the company pays suppliers

The shorter this cycle, the faster the company converts investments into cash and the less external financing it needs.

The Indian Reality: How Sectors Differ Dramatically

The chart above reveals why different Indian sectors have wildly different working capital needs. Maruti Suzuki has a cash conversion cycle of -27.59 days meaning it receives cash from customers before it pays suppliers. This is vendor-financed growth. Dealers pay upfront (often with bank financing), and Maruti pays suppliers after 60+ days. The company literally makes money by the time it pays for components.

Compare this to TCS, which has a 45.86-day cash conversion cycle. TCS provides IT services, invoices clients in dollars, then waits 70+ days for payment. Meanwhile, salaries and infrastructure costs are paid immediately in rupees. The company must fund 45+ days of operations from internal cash reserves or external financing.

Walmart operates with a 4.52-day cycle nearly neutral. Retail customers pay immediately (cash sale), inventory turns over quickly, and Walmart negotiates extended payment terms with suppliers (often 40+ days). This creates a "vendor-financed" retail model where suppliers unknowingly fund inventory growth.

For typical manufacturing companies, the cycle stretches to 50-60+ days. Long production cycles mean inventory sits for extended periods. Customers receive extended credit (60-90 days) to secure sales. Suppliers provide standard 30-45 day terms. The company must finance the gap from working capital.

Why This Matters for Investors

A company with a short or negative cash conversion cycle can grow faster without external financing. Maruti can expand production and sales while simultaneously improving cash position. The business funds itself.

A company with a long cycle faces a growth trap: each new sale requires cash outlay (production + operating costs) that won't be recovered for months. Rapid growth actually worsens cash position. Growing companies often paradoxically face liquidity crises because they're consuming cash faster than they can collect it despite showing profit.

This explains why startups and rapidly growing companies frequently face cash crunch despite profitability. They're locked in a working capital trap: to grow ₹100 crores to ₹150 crores, they need to fund the incremental ₹50 crores of working capital while waiting for customer payments. If the cash conversion cycle is 90 days, that's ₹15 crores in additional financing needed just to fund the growth.

How to Improve Your Cash Conversion Cycle

Reduce DIO (Days Inventory Outstanding): Faster inventory turnover releases cash. Manufacturing can reduce production batch sizes, implement just-in-time inventory, or negotiate faster supplier deliveries. Retail can focus on fast-moving inventory and liquidate slow-moving stock.

Reduce DSO (Days Sales Outstanding): Faster customer collections accelerate cash inflow. Offer early payment discounts (e.g., 2% discount if paid within 10 days instead of 45 days). Implement automated invoicing and payment reminders. Offer online payment options. Build relationships with customers to accelerate collections.

For IT services companies, there's a structural challenge: clients are multinational corporations with standardized 30-60 day payment terms. TCS can't dramatically reduce DSO without walking away from business. But they can optimize other aspects.

Extend DPO (Days Payable Outstanding): Negotiate longer payment terms with suppliers. This is the lever Maruti and Walmart use aggressively. A company with strong bargaining power can extend supplier terms from 45 to 60 days instantly improving cash position by 15 days of operating expenses.

However, extending payment terms must be done carefully. Pushing suppliers too hard damages relationships and can lead to supply disruptions. The best approach is growing alongside trusted suppliers so they benefit from your growth and willingly extend terms.

The Sector Dynamics

FMCG retail has negative cash conversion cycles—customers pay immediately (cash sales), inventory turns in 20-30 days, and suppliers give extended terms (45+ days). This creates a liquidity surplus that funds growth.

Automotive manufacturing (Maruti, Tata Motors) combines fast inventory turnover (dealers buy quickly) with extended supplier terms, creating negative cycles. The business generates cash as it grows.

IT services have structurally longer cycles because service revenue is collected slowly (clients take 60-90 days) while employee salaries are paid immediately. Even efficiency-focused companies like TCS can only optimize, not eliminate, this gap.

Fast-moving consumer goods manufacturing faces moderate cycles production takes time, customers receive credit, suppliers provide standard terms. Profitability and efficiency matter more than cycle length for these companies.

The Bottom Line for Investors

When evaluating an Indian company, calculate its cash conversion cycle. Compare it to industry peers. A company with a shorter cycle than peers is more efficiently managed it generates cash faster, needs less external financing, and has greater financial flexibility.

Watch for companies with lengthening cycles. If DIO is rising (inventory buildup), DSO is stretching (collections deteriorating), or DPO is shortening (suppliers tightening terms), the company faces working capital pressure. This is often a leading indicator of financial stress before it appears in profitability metrics.

Conversely, a company that shortens its cycle is generating cash faster, improving its liquidity position, and becoming more financially robust even if top-line growth seems flat.

Understanding cash conversion cycle separates companies that are genuinely efficient from those that simply look profitable on paper. It's where accounting profit meets cash reality and in India's competitive, cash-constrained business environment, this distinction determines survival.