This is Why Profitable Companies Run Out of Cash | Ep 219
whatshot 9 snips
Mar 9, 2026
They break down the cash conversion cycle and why profit can hide cash problems. Short segments define DSO, DIO, and DPO and show how to calculate them. Practical tactics cover invoicing, inventory strategies, and negotiating payment terms. Growth’s impact on working capital and funding gaps is highlighted with a clear numerical example.
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insights INSIGHT
Profit Is Not The Same As Cash
Profit and cash flow are different and profitability on the income statement can hide cash shortages.
Capital expenditures and working capital consume cash but often don't appear as current cash outflows on the income statement.
insights INSIGHT
Cash Conversion Cycle Formula Explained
The cash conversion cycle equals DSO plus DIO minus DPO and measures how long cash is tied up in working capital.
DSO uses AR/revenue, DIO uses inventory/COGS, and DPO uses AP/COGS all annualized to days.
volunteer_activism ADVICE
How To Calculate DSO Correctly
Compute DSO by dividing accounts receivable by last 12 months revenue and multiplying by 365 to avoid noisy short-period distortions.
Always match the balance sheet item to a 12‑month denominator for stable day metrics.
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A lot of companies are profitable on paper but still run out of cash.
The problem usually comes down to something most owners never measure called the cash conversion cycle. Steve explains why profit and cash flow are different, how working capital traps cash inside a business, and why growing too fast can actually make the problem worse. Once you understand how DSO, inventory, and payables affect your cash cycle, you can start pulling the right levers to get cash moving back into your business.
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Strategy Meets Finance