After Diwali: Follow the Inventory and the Cash
A profitable festive season can still consume cash. Reconcile purchases, unsold stock, customer collections and supplier payments with a worked example.
A festive season can be profitable and still consume cash. Inventory purchases, customer collections and supplier payments can occur on different dates from the sales and costs recognised in the income statement.
After Diwali, the useful question is not merely how large the sales headline was. It is what happened to the unsold products, the money customers owed and the bills due to suppliers.
This article explains that reconciliation using a hypothetical trading business. It does not diagnose a real company, allege accounting misconduct or recommend a security. None of the example figures is an observed 2026 festive result.
Follow three balances before drawing a conclusion
Inventory is stock the business has not yet expensed through the sales in this simplified example. Trade receivables are amounts customers owe. Trade payables are amounts the business owes suppliers.
More inventory or receivables generally ties up cash, all else equal. More supplier credit can temporarily offset that funding requirement. These directions explain a cash bridge; they are not a verdict on whether any one balance is healthy.
A shop may deliberately carry stock for another occasion. A business-to-business seller may use agreed credit terms. Supplier balances may rise with legitimate purchasing activity. Context matters before a number becomes a concern.
A complete example in ₹ lakh
Imagine a retailer has no taxes, depreciation, financing costs, returns or other balance movements during the period. It starts with inventory of 80, receivables of 20 and trade payables of 60.
During the season, it recognises sales of 200, cost of goods sold of 140 and cash operating expenses of 15. Its simplified profit is:
200 − 140 − 15 = 45
It purchases 180 of merchandise. Closing inventory is 80 + 180 − 140 = 120. Receivables finish at 50, and payables remain at 60.
| Working-capital balance | Opening | Closing | Change |
|---|---|---|---|
| Inventory | 80 | 120 | +40 |
| Trade receivables | 20 | 50 | +30 |
| Trade payables | 60 | 60 | 0 |
| Inventory + receivables − payables | 40 | 110 | +70 |
All amounts are hypothetical ₹ lakh. The last row is a deliberately narrow trade-working-capital measure, not a definition of every current asset and liability.
Hypothetical ₹ lakh: inventory + trade receivables − trade payables. The ₹70 lakh increase absorbs cash in this simplified example.
Reconcile the bank account as well as the profit
Customer collections are opening receivables plus current sales minus closing receivables: 20 + 200 − 50 = 170.
Supplier payments are opening payables plus purchases minus closing payables: 60 + 180 − 60 = 180. Cash operating expenses are 15.
Net operating cash movement = 170 − 180 − 15 = −25
The same answer comes from profit less the increase in the defined working-capital balances:
45 − 40 − 30 + 0 = −25
The business earned 45 in the simplified income statement while its operating activities consumed 25 of cash. The difference is explained, not mysterious. Actual financial statements require additional adjustments and a check of all relevant cash-flow items.
For the broader framework, read working capital and the cash conversion cycle. Keep purchases separate from cost of goods sold: purchases add stock, while cost of goods sold relates to what was sold.
Leftover inventory needs a business explanation
A higher closing rupee balance can reflect more units, cost inflation or a richer mix. It can also reflect new outlets or planned replenishment. An inventory value alone does not reveal whether products are ageing.
Ask whether the business discloses quantities, stock ageing, markdowns or seasonal comparisons. Compare the same point after the festival in earlier years, not only a low-stock date before purchasing began.
As a general accounting principle, IAS 2 measures ordinary inventory within its scope at the lower of cost and net realisable value. The latter considers the expected selling price less relevant completion and selling costs. Indian entities’ applicable accounting requirements must be checked separately. IFRS Foundation inventory overview.
For research, that means leftover stock is not automatically cash waiting at its original selling price. Recoverability and further selling costs matter. It also means an observed markdown is not, on its own, evidence of impropriety.
Collections and advances are different stories
Customer cash received can relate to earlier invoices, current sales or future delivery. Combining those receipts without context can produce an inaccurate account of demand.
ICAI’s Ind AS 115 teaching material distinguishes receivables and contract balances; a payment ahead of the relevant performance can represent a contract liability rather than earned revenue. Read the entity’s applicable policy and contract terms. ICAI, presentation section, pages 208 onward.
Likewise, a rising receivables balance is not automatically overdue debt. Ageing, terms, customer mix and subsequent collections help establish what it means. If those details are unavailable, do not turn a timing question into an accusation.
Review the season with a small evidence checklist
Record comparable-period inventory and receivables, the supplier-payment context, disclosed returns and the date of each observation. Preserve what management said before the season separately from what was reported afterwards.
Altys’s source-linked research workflow helps place financial statements, operating disclosures and earlier commentary together for review. Company-monitoring workflows are useful for noticing changes that warrant a check; they are not automatic investment instructions or substitutes for an audit.
Request access to Altys to explore those workflows. Where an Excel export is available, verify the period, definitions and arithmetic rather than relying only on the narrative.
Revisit festive discounts, gold value versus grams and calendar comparisons. Together they explain how a busy season can become sales, earnings and cash at different speeds.
Scope: general business education and an invented, simplified cash-flow example. No assessment of a named security or allegation about a business. Altys Labs is not a SEBI-registered Research Analyst or Investment Adviser.
Frequently asked questions
Can a profitable Diwali season have negative operating cash flow?
Yes. Stock purchases and delayed customer collections can absorb more cash than the period's profit. Reconcile inventory, receivables and payables before inferring anything about business quality.
Does higher inventory after Diwali prove weak demand?
No. It can reflect remaining stock, new stores, replenishment, price changes or another seasonal cycle. Examine quantities, ageing, comparable periods and management explanations. Inventory growth alone does not establish weak demand or misconduct.
Is a customer advance the same as revenue?
Not necessarily. Receiving money before satisfying the relevant obligation can create a contract liability rather than recognised revenue. Check the applicable accounting standard and the company's policy.