Negative working capital is result of a situation were a company does not need enough cash balance to pay of its accounts payables. For example, take Dominos Pizza - assume they bought pizza ingredients from suppliers for Rs.1,000 with a 30 day credit. Within those 30 days, dominos will use the ingredients to make the pizza, sell it, get instant cash from customer and pay back the supplier. So in that 30 day period current liabilities will be higher than current assets, hence leading to negative working capital (working capital is defined as current assets - current liabilities).
May 06 2012 08:09 PM
Let me know if that makes sense