Title: Working Capital: When It Can Be Negative
Headings: When Working Capital Can Be Negative
When Working Capital Can Be Negative
Understanding Working Capital
Positive Working Capital
Zero Working Capital
Key Takeaways
Inside Negative Working Capital

Content: As a result, different amounts of working capital can affect a company's finances in different ways. Working capital is a measure of how well a company is able to manage its short-term financial obligations. Positive Working Capital
When a company has more current assets than current liabilities, it has positive working capital. Having enough working capital ensures that a company can fully cover its short-term liabilities as they come due in the next twelve months. This is a sign of a company's financial strength. However, having too much working capital in unsold and unused inventories, or uncollected accounts receivables from past sales, is an ineffective way of using a company's vital resources. The additional funds parked in inventories or receivables are not financed by short-term liabilities but rather long-term capital, which should be used for longer-term investments to increase investment effectiveness. The key is thus to maintain an optimal level of working capital that balances the needed financial strength with satisfactory investment effectiveness. To accomplish this goal, working capital is often kept at 20% to 100% of the total current liabilities. Zero Working Capital
When a company has exactly the same amount of current assets and current liabilities, there is zero working capital in place.