Square Pharmaceuticals collects cash from its customers in 14.33 days. Beximco Pharmaceuticals takes 49.58 days for the same job. Both sell generic drugs into the same Bangladesh market. Both are listed on the Dhaka Stock Exchange. Both report quarterly earnings the market scrutinises obsessively.
But the 35-day gap between them does not appear on any income statement. It hides inside their balance sheets. And it predicts what their EPS reports cannot — that Square earns 10.61% on its assets while Beximco earns 3.15%, a more than three-fold difference in operational profitability that begins with how fast each company turns receivables into cash.
This is working capital efficiency. For DSE investors who have learned to read P/E ratios, EPS, and ROE, it is the next analytical layer — the one that separates companies that will compound from the ones that will quietly decay.
Here is how to read it.
What Working Capital Actually Measures
Working capital sounds technical. It is not. The formula reads: current assets minus current liabilities. The number tells you whether a company can pay the bills due within twelve months using assets that will turn into cash within twelve months. A current ratio above 1.0 is the conventional health threshold, though optimal levels vary by sector.
But the working capital balance is a snapshot. The sharper question is dynamic: how fast does this company turn cash tied up in inventory and receivables back into cash on the balance sheet? Every taka stuck in unsold goods or unpaid invoices is a taka not earning a return. The faster a company recycles that cash, the more aggressively it can grow without debt — and the more durable its returns when the cycle turns.
That speed is what the cash conversion cycle measures.
The Cash Conversion Cycle Formula
The CCC is a count of days. It tells you how long, on average, a taka of cash stays trapped in operations between when the company pays its suppliers and when it collects from its customers.
The formula has three components. Days Inventory Outstanding (DIO) measures how long stock sits unsold. Days Sales Outstanding (DSO) measures how long invoices wait to be paid. Days Payable Outstanding (DPO) measures how long the company itself stretches its own bills before settling. The cycle equals DIO plus DSO minus DPO.
A short cycle is good. A negative cycle — where suppliers effectively finance operations — is exceptional. A long cycle drains cash, forces borrowing, and erodes return on assets.
A study of 61 DSE-listed manufacturing firms across 2003 to 2020 found a statistically significant negative correlation between CCC length and profitability. Shorter cycles produced higher EPS — a strong link the market consistently underprices.
Now apply it to two real DSE names.
The Square Versus Beximco Lesson
A comparative study of Bangladesh’s two pharmaceutical leaders found Square and Beximco operating in essentially the same market — generic drugs sold through domestic distribution and a growing export book — yet producing radically different operational outcomes.
Square’s receivables ran at 14.33 days. Beximco’s ran at 49.58 days. That single metric drove a chain reaction. Square sat on more equity and less debt because it did not need borrowed money to fund waiting receivables. Beximco carried more debt and smaller cash reserves because its operating cycle demanded it. Square’s return on investment came in at 10.61%. Beximco’s was 3.15%.
Same sector. Same products. Three-fold difference in returns. The differentiator was not revenue growth or gross margin. It was the speed at which one company converted sales into cash.
How to Read CCC From a DSE Balance Sheet
Every DSE-listed company files audited financial statements that contain everything a CCC calculation requires.
From the income statement, pull revenue and cost of goods sold. From the balance sheet, pull average inventory, average accounts receivable, and average accounts payable (opening plus closing, divided by two).
DIO equals average inventory divided by daily COGS. DSO equals average receivables divided by daily revenue. DPO equals average payables divided by daily COGS. Sum them — DIO plus DSO minus DPO — and you have the cycle in days.
Compare the result against the company’s three-year trend. A widening CCC signals working capital decay before it shows up in earnings. Then compare against sector peers. A CCC materially longer than the sector average is a red flag the market often has not yet priced in.
Sector Patterns Investors Miss
Optimal CCC varies sharply by sector. Pharmaceuticals typically runs longer collection periods than manufacturing because hospitals, distributors, and government channels pay slowly. Textile firms hold longer inventory cycles because they buy cotton in bulk and produce against orders that ship months later. Banking and NBFI names have no CCC in the traditional sense — their working capital is the loan book, read instead through NPL ratios.
The implication: do not compare a textile company’s CCC against a pharmaceutical’s. Compare against direct sub-sector peers. The signal is deviation from peer norms — the company converting cash faster than its competitors is quietly building an operational moat the price chart has not yet registered.
What This Means When You Open the Next Annual Report
Return to Square and Beximco. The 35-day gap in receivables was not a quarterly anomaly. It was a structural difference in how each company runs its business — one that compounded into a 7.46 percentage-point gap in return on investment year after year.
DSE earnings releases will not flag this contrast. Working capital efficiency is the metric you have to compute yourself, from line items the market reads past on its way to the headline EPS. The companies that win the cash conversion race rarely advertise the fact. The investors who can read the cycle find them first — usually before the rerating.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Investors should conduct their own due diligence before making any investment decisions.