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what are other things to look at in the balance sheet to confirm that the negative working capital is good for the company.



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what are other things to look at in the balance sheet to confirm that the negative working capital is good for the company. Can another example be given where the negative working capital gets the company into trouble.

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Yes a negative capital means higher liabilities. In business such as retail this might be a good thing. Because this means that the company is running on someone else's money.

For example take a company like flipkart or amazon - they typically get 15-40 day credit from their suppliers. So this credit they get shows up as Accounts payables in the liability section. Within this 4o days flipkart/amazon will sell the product get the cash from the customer and pay off the liability. This is an example of how a negative working capital benefits the company.


One of things to look for is if the liabilities are short term accounts payable items or long term debt. Also another thing to look for is if the free cash flow for that period is enough to cover the short-term liabilities. If both these are true then the negative working capital is good. If the free cash flow cant cover the liability then the company is in trouble.

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