R.K. Fashion Accessories’ Cash Flow Turns Negative Despite Profit

R.K. Fashion Accessories reported negative operating cash flow of Rs 67.79 lakh in fiscal 2026 despite operating profit before working-capital changes of Rs 7.3396 crore. Inventory reached Rs 7.8287 crore and trade receivables reached Rs 3.4193 crore, absorbing cash as the company expanded revenue from operations to Rs 30.3571 crore.

Why did R.K. Fashion Accessories’ cash flow turn negative despite profit?

R.K. Fashion Accessories’ operating cash flow turned negative because working-capital movements and direct tax payments exceeded the cash generated from operating profit in fiscal 2026. Operating profit before working-capital changes rose to Rs 7.3396 crore in fiscal 2026 from Rs 2.9844 crore in fiscal 2025 and Rs 18.23 lakh in fiscal 2024, but cash used in operations was Rs 67.79 lakh.

The fiscal 2026 operating cash-flow reconciliation records a Rs 2.7356 crore increase in inventory, a Rs 1.8606 crore increase in trade receivables and a Rs 99.46 lakh increase in short-term loans and advances. Trade payables declined by Rs 1.1529 crore, rather than providing a cash offset, while direct taxes paid totalled Rs 1.825 crore. As a result, net cash flow before extraordinary items and tax was Rs 1.1472 crore, which became a negative Rs 67.79 lakh after tax payments.

Operating cash flow had been positive at Rs 3.09 lakh in fiscal 2025, after a negative Rs 26.10 lakh in fiscal 2024. The fiscal 2026 result therefore followed a substantial increase in reported operating profit, but cash conversion depended on inventory purchases, customer collections, supplier-credit movements and the timing of tax payments.

Why has R.K. Fashion Accessories’ working capital risen so quickly?

R.K. Fashion Accessories’ net working capital increased to Rs 7.4821 crore in fiscal 2026 from Rs 1.4299 crore in fiscal 2025 and negative Rs 77.01 lakh in fiscal 2024. Net working capital is current assets less current liabilities, and the fiscal 2026 requirement represented 24.65% of revenue from operations, compared with 8.05% in fiscal 2025 and negative 5.80% in fiscal 2024.

The increase arose as current assets expanded while trade payables fell in fiscal 2026. Inventory grew from Rs 1.0861 crore in fiscal 2024 to Rs 5.0931 crore in fiscal 2025 and Rs 7.8287 crore in fiscal 2026. Trade receivables rose from Rs 48.50 lakh to Rs 1.5587 crore and then Rs 3.4193 crore, while trade payables decreased to Rs 3.88 crore in fiscal 2026 from Rs 5.033 crore in fiscal 2025.

R.K. Fashion Accessories projects net working capital of Rs 12.3412 crore in fiscal 2027 and Rs 18.7935 crore in fiscal 2028. The disclosed fiscal 2027 funding pattern assigns Rs 10.5277 crore to internal sources and Rs 1.8134 crore to the proposed initial public offering, or IPO. That projection is linked to revenue from operations rising from Rs 30.3571 crore in fiscal 2026 to Rs 47.50 crore in fiscal 2027 and Rs 72.375 crore in fiscal 2028.

How much cash is tied up in inventory and receivables?

R.K. Fashion Accessories had Rs 11.2479 crore tied up in inventory and trade receivables at March 31, 2026, compared with Rs 6.6518 crore at March 31, 2025. The combined balance increased by Rs 4.5961 crore in fiscal 2026, matching the cash-flow statement’s Rs 4.5962 crore use of cash from higher inventory and receivables, subject to rounding between balance-sheet and cash-flow figures.

Inventory represented 58.54% of total current assets in fiscal 2026, up from 42.98% in fiscal 2025 and 16.25% in fiscal 2024. Trade receivables accounted for 25.57% of current assets in fiscal 2026, compared with 13.15% and 7.25% in the preceding two fiscal years. These two balances formed 84.11% of the company’s reported Rs 13.3742 crore total current assets in fiscal 2026.

R.K. Fashion Accessories manufactures based on anticipated market demand rather than long-term or confirmed customer order books. This approach requires holdings of raw materials and finished goods, but it exposes the company to excess, slow-moving or obsolete stock if fashion trends, seasonal preferences or management demand estimates do not materialise as expected.

Have R.K. Fashion Accessories’ customer collections become slower?

Yes. R.K. Fashion Accessories’ debtors turnover ratio declined to 12.20 times in fiscal 2026 from 17.39 times in fiscal 2025 and 22.73 times in fiscal 2024. Debtors turnover ratio measures net credit sales divided by average trade receivables, so the lower fiscal 2026 ratio indicates that the company collected receivables less frequently during the year.

The detailed receivables disclosure reports average outstanding receivable days of 37 days in fiscal 2026, compared with 21 days in fiscal 2025 and 16 days in fiscal 2024. Receivable days measure average trade receivables divided by net credit sales and multiplied by 365 days. Another disclosure states trade-receivable days of 30 days for fiscal 2026, but both disclosures show a longer collection period than in fiscal 2025 and fiscal 2024.

Longer collections can restrict the cash available to procure raw materials and settle the company’s own obligations. R.K. Fashion Accessories states that delayed or defaulted customer payments could result in provisions for doubtful debts or write-offs, while an inability to collect dues on time could strain liquidity and operations.

Is R.K. Fashion Accessories selling inventory more slowly?

Yes. R.K. Fashion Accessories’ inventory turnover ratio fell to 4.70 times in fiscal 2026 from 5.75 times in fiscal 2025 and 11.12 times in fiscal 2024. Inventory turnover measures cost of goods sold divided by average inventory, so the lower ratio indicates inventory was sold and replenished less frequently over the three fiscal years.

The inventory balance increased more rapidly than revenue from operations. Inventory rose more than sevenfold from Rs 1.0861 crore in fiscal 2024 to Rs 7.8287 crore in fiscal 2026, while revenue increased from Rs 13.2849 crore to Rs 30.3571 crore over the same period. The reported comparison shows that the additional stock commitment was not accompanied by faster inventory movement.

Supplier credit also provided less support in fiscal 2026. Trade payables increased by Rs 3.1556 crore in fiscal 2025, partly offsetting the Rs 4.007 crore inventory increase that year, but trade payables decreased by Rs 1.1529 crore in fiscal 2026. Inventory planning, sales realisation and supplier-payment terms must therefore remain aligned for the projected working-capital requirement to be funded without further cash pressure.

Conclusion

R.K. Fashion Accessories’ fiscal 2026 results show that reported operating profit did not translate into operating cash because more capital was committed to stock, customer credit and short-term advances. Inventory of Rs 7.8287 crore and receivables of Rs 3.4193 crore, together with lower trade payables and Rs 1.825 crore of direct taxes paid, resulted in negative operating cash flow of Rs 67.79 lakh despite Rs 7.3396 crore of operating profit before working-capital changes.

The next measure to watch is execution of the disclosed fiscal 2027 plan for Rs 47.50 crore of revenue and Rs 12.3412 crore of net working capital, including Rs 1.8134 crore proposed from IPO proceeds. The unresolved issue is whether collections, inventory turnover and supplier credit can improve sufficiently to support growth without extending the cash-conversion gap seen in fiscal 2026.