The Cash Cycle Race: how long brands wait to get their cash back

Every brand runs the same loop. You pay for inventory, you wait for it to sell, you wait to get paid, and then you do it again. The number of days in that loop is the cash conversion cycle, and every one of those days is a day your own cash has to carry the business.

The Elephant Herd Index now has 34 monthly snapshots, January 2024 through October 2026. So this month, instead of another table, I wanted to watch the cycle move. Press play.

A few notes on reading it. Each bar is a company's cash conversion cycle over the trailing twelve months, in average days. Bars to the left of zero mean suppliers are effectively funding the business. Numbers only change when a company reports, so most bars move once a quarter, and companies drop out when they stop reporting. The brands I mention below are in orange. Switch to Shortest to find the other end of the list.

Most brands got faster

Of the 35 brands with numbers at both ends of the period, 25 shortened their cycle. The median went from 133 days to 120.

Some of the moves were big:

• Canada Goose went from 461 days to 335
• FIGS went from 300 to 192
• On went from 192 to 120
• Estée Lauder went from 172 to 83
• Tapestry went from 118 to 72
• Warby Parker went from 55 to 8

The ones that went the other way are mostly the luxury houses. Richemont went from 319 days to 412, LVMH from 203 to 238, Hermès from 142 to 171 and Moncler from 81 to 124. When your gross margin is 70% or more, carrying a lot of inventory is a choice you can afford. Most brands can't make that choice.

What this means for a $5-25M brand

If your cycle is 120 days, about a third of a year of inventory cost is always waiting to come back to you. Grow 30% and that pile grows 30% too, and you pay for it before the new sales arrive. e.l.f. and On can fund that out of 65-70% margins and years of scale. Most growing brands can't, which is why they end up profitable and short on cash at the same time.

There are three ways out.

1/ Increase your margins and your ability to convert sales into Free Cash Flow.

2/ Shorten the cycle: buy closer to demand, negotiate payment terms, clear slow inventory. Many of the brands above did exactly that over the last two years.

3/ Fund the cycle with capital that matches it, so your own cash goes to customer acquisition instead of sitting in boxes.

The third one is why Elephant Herd Capital exists. We fund 100% of your inventory and get repaid as it sells, so the cycle stops deciding how fast you can grow.

The data

The full Elephant Herd Index is free, with every monthly tab back to January 2024 and more than 80 metrics per company. Data is from Koyfin and reflects each company's latest reported numbers. If there's a company or metric you want me to look at next month, email me at ben@elephantherdcapital.com.