Question:

What does it mean if a company has negative Working Capital?

Answer hidden.

Answer:

If a company has negative Working Capital, it means that their short-term liabilities are greater than their short-term assets.

There are a couple different situations where this can arise:

  1. Many retailers like Wal-Mart and McDonald's have negative Working Capital because they generate cash quickly from their customers and don't have to pay their suppliers right away. In this case, the company is effectively using their supplier's money to grow and it is a sign of business efficiency.
  2. On the other end of the spectrum, negative Working Capital can appear when customers don't pay upfront and on time and the company is carrying a large debt balance. This can point to serious financial trouble and potential bankruptcy situations.

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