about 'Working Capital and Debt / Equity Ratio and Return on Net Worth' module



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I watched the video sir, there you said that Dominos has negative working capital. I didn't understand it exactly. how? let's say Dominos buys the material worth Rs. 1 lakh & it has to pay this amount @ end of month. its inventory will rise, cash will remain the same. it's a loan as it has to pay that amount in future. dominos is making revenue i.e. its cash is rising. so how can be the current liabilities greater than than current assets ?

1 Answer(s)


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Buys material worth 1 lac - inventory will increase by 1 lac (current assets)
Payables will increase by 1 lac - current liability
Like you said it is true that cash will go up due to revenue, but that cash will be immediately used to pay down payables to the suppliers. Hence current assets will be lower then current liabilities and hence working capital will be -ve.

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