Disclaimer: I am not a SEBI Registered Investment Advisor. The views and analysis expressed in this post are for educational and informational purposes only and do not constitute financial advice, investment advice, or a recommendation to buy or sell any securities. Investing in the stock market involves significant risks. Please consult with a qualified financial advisor before making any investment decisions. The author shall not be held responsible for any financial losses or decisions made based on this content.
The number most people miss is the incremental working capital per rupee of revenue, not the absolute level, but whether that ratio is getting better or worse over time. A business can look like Category 2 for five years and cross into Category 3 without anyone noticing because the annual swings distract from the direction of travel.
Patels Airtemp isn't unusual; a lot of Indian mid-caps in engineering and chemicals sit exactly here, growing topline, reasonable margins, and a working capital cycle that neutralises most of it. The P&L gets the headline, the cash flow gets the footnote.
Buffett's test was never about the formula rather, it was about whether the business earns the right to keep what it makes. A lot of businesses in this market don't.
Completely agree with your though. The P&L is where stories are told; the cash flow is where the lies are buried. Funny how most people prefer stories.
The contrasting fact is, I've never met a great investor who can't read balance sheet and religiously preach cash flow statement. I've met plenty of broke ones who couldn't.
“Rare to see someone highlight owner earnings so clearly—first came across it in the book , The Warren Buffett Way, and glad to see it being applied so thoughtfully here.”
Interesting lens on working capital - while often discussed from an investor standpoint, these dynamics are just as real inside companies. The discipline around receivables, inventory, and payables ultimately shapes cash flow outcomes, regardless of whether you’re analyzing a business or running one.
Disclaimer: I am not a SEBI Registered Investment Advisor. The views and analysis expressed in this post are for educational and informational purposes only and do not constitute financial advice, investment advice, or a recommendation to buy or sell any securities. Investing in the stock market involves significant risks. Please consult with a qualified financial advisor before making any investment decisions. The author shall not be held responsible for any financial losses or decisions made based on this content.
The number most people miss is the incremental working capital per rupee of revenue, not the absolute level, but whether that ratio is getting better or worse over time. A business can look like Category 2 for five years and cross into Category 3 without anyone noticing because the annual swings distract from the direction of travel.
Patels Airtemp isn't unusual; a lot of Indian mid-caps in engineering and chemicals sit exactly here, growing topline, reasonable margins, and a working capital cycle that neutralises most of it. The P&L gets the headline, the cash flow gets the footnote.
Buffett's test was never about the formula rather, it was about whether the business earns the right to keep what it makes. A lot of businesses in this market don't.
Completely agree with your though. The P&L is where stories are told; the cash flow is where the lies are buried. Funny how most people prefer stories.
The contrasting fact is, I've never met a great investor who can't read balance sheet and religiously preach cash flow statement. I've met plenty of broke ones who couldn't.
“Rare to see someone highlight owner earnings so clearly—first came across it in the book , The Warren Buffett Way, and glad to see it being applied so thoughtfully here.”
Appreciate your response. Thanks for your kind words. Hope to share more such concepts in future
Would be kind enough to share the line items(formula) considered to derive on the numbers mentioned against w.c requirement.
Join the chat and ask for the same. I will share you over there.
I have. Unsure if there is a seperate forum.
https://substack.com/chat/8113950?utm_source=share&utm_medium=android
Interesting lens on working capital - while often discussed from an investor standpoint, these dynamics are just as real inside companies. The discipline around receivables, inventory, and payables ultimately shapes cash flow outcomes, regardless of whether you’re analyzing a business or running one.
So true. Analysis of a business is more authentic if it is done as if one is running the business.
That's why Warren Buffett says I am a better investor because I am a better businessman and vice-versa.
Great one! A good exercise to follow and add into once checklist. Thanks a lot
Thanks for your ind words
insightful article!
Thanks