{
  "id": 48906,
  "date": "2021-12-02T03:57:00",
  "date_gmt": "2021-12-02T08:57:00",
  "guid": { "rendered": "https:\/\/finance-able.com\/?p=48906" },
  "modified": "2025-12-21T16:51:34",
  "modified_gmt": "2025-12-21T21:51:34",
  "slug": "negative-working-capital",
  "status": "publish",
  "type": "post",
  "link": "https:\/\/finance-able.com\/negative-working-capital\/",
  "title": {
    "rendered": "Negative Working Capital Made Easy \u2013 The Ultimate Guide"
  },
  "content": {
    "rendered": "\n<p style=\"font-size:18.5px\">Master the concept of <strong>Negative Working Capital<\/strong> so you can use it on the job in <a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Banking<\/span><\/strong><\/a>, <a href=\"https:\/\/finance-able.com\/private-equity-vs-venture-capital\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Private Equity<\/span><\/strong><\/a>, and <a href=\"https:\/\/finance-able.com\/hedge-fund-vs-mutual-fund\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Management<\/span><\/strong><\/a>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this article, you will learn:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Why Negative Working Capital matters<\/strong>.<\/li>\n\n\n\n<li>How Negative Working Capital <strong>creates excess Cash Flow<\/strong> (essentially a &#8216;Free Loan&#8217;) for a Business.<\/li>\n\n\n\n<li>The <strong>two primary drivers<\/strong> of Negative Working Capital.<\/li>\n\n\n\n<li>How <strong>Amazon<\/strong> used Negative Working Capital to <strong>raise $10 million in funding before its IPO<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p class=\"yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">14<\/span><span class=\"yoast-reading-time__time-unit\"> minutes<\/span><\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tl-dr\" style=\"font-size:35px\"><strong>TL;DR<\/strong><\/h2>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Negative Working Capital results when <strong>Current Liabilities exceed Current Assets<\/strong>.<\/li>\n\n\n\n<li>A Negative Working Capital situation creates <strong>excess cash for a growing business<\/strong> but <strong>requires cash investment as a business declines<\/strong>.<\/li>\n\n\n\n<li>Negative Working Capital <strong>drives incremental cash flow<\/strong> <strong>and thus a higher valuation<\/strong> for a <strong>perpetually growing business.<\/strong><\/li>\n<\/ul>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-columns containerwidth is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\"><div class=\"kb-row-layout-wrap kb-row-layout-id48906_0968ea-ed alignnone wp-block-kadence-rowlayout\"><div class=\"kt-row-column-wrap kt-has-1-columns kt-row-layout-equal kt-tab-layout-inherit kt-mobile-layout-row kt-row-valign-top\">\n\n<div class=\"wp-block-kadence-column kadence-column48906_1167ae-87\"><div class=\"kt-inside-inner-col\">\n<h2 class=\"wp-block-heading\" id=\"h-want-to-learn-more-about-finance\" style=\"font-size:35px\"><strong><strong>Want To Learn More About Finance?<\/strong> <\/strong><\/h2>\n\n\n\n<p style=\"font-size:18px\"><strong>Check out all of our (free) deep-dive articles in our<\/strong> <a href=\"https:\/\/finance-able.com\/analyst-starter-kit\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Analyst Starter Kit<\/span><\/strong><\/a>:<\/p>\n\n\n<div class=\" wp-block-kadence-portfoliogrid kb-blocks-portfolio-loop-block alignnone kb-portfolio-loop48906_42fd9b-b6 kb-portfolio-grid-layout-carousel kt-blocks-carousel \"><div class=\" kb-portfolio-grid-layout-carousel-wrap kt-post-grid-layout-carousel-wrap kt-carousel-arrowstyle-whiteondark kt-carousel-dotstyle-dark splide kb-blocks-portfolio-img-hover-zoomout kb-blocks-portfolio-content-hover-zoomin\" data-columns-xxl=\"3\" data-columns-xl=\"3\" data-columns-md=\"3\" data-columns-sm=\"2\" data-columns-xs=\"1\" data-columns-ss=\"1\" data-slider-center-mode=\"false\" data-slider-type=\"carousel\" data-slider-anim-speed=\"400\" data-slider-scroll=\"1\" data-slider-dots=\"true\" data-slider-arrows=\"true\" data-slider-hover-pause=\"false\" data-slider-auto=\"true\" data-slider-center-mode=\"false\" data-slider-speed=\"7000\" data-show-pause-button=\"false\" data-slider-gap=\"30\" data-slider-gap-tablet=\"30\" data-slider-gap-mobile=\"30\" data-slider-gap-unit=\"px\" data-item-selector=\".kb-portfolio-masonry-item\"><div class=\"kadence-splide-slider-init splide__track\"><ul><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"An image of a lightbulb with the text Unlevered Beta Formula\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/unlevered-beta-formula\/\" aria-label=\"Unlevered Beta Formula &#8211; Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Unlevered Beta Formula &#8211; Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"A lightbulb and the words Purchase Price Allocation\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/purchase-price-allocation\/\" aria-label=\"Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:45.138888888889%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"720\" height=\"325\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png\" class=\"attachment-large size-large wp-post-image\" alt=\": A stick figure answering an interview question with the title text &#039;Walk Me Through an LBO&#039; below\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png 720w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-300x135.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-400x181.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-624x282.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-50x23.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-100x45.png 100w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\" aria-label=\"Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><\/ul><\/div><div class=\"clearfix\" style=\"clear:both\"><\/div><\/div><\/div><\/div><\/div>\n\n<\/div><\/div><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-columns containerwidth is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\"><\/div>\n<\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Why Does Negative Working Capital Matter?<\/strong><\/h2>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-1024x576.png\" alt=\"A stick figure sitting at a computer confused about various Negative Working Capital concepts\" class=\"wp-image-48865\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-confused-about-negative-working-capital.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Negative Working Capital<\/strong> is a <strong>critical concept<\/strong> to master if you are <strong>aiming for (or working in) Finance<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The concept of <strong>Negative Working Capital<\/strong> <strong>is often not well understood<\/strong> as a bit of <strong>a confusing concept<\/strong>. In this article, we will provide a variety of illustrations to <strong>make the concept clear<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Let\u2019s start with what is Negative Working Capital and how is it created?<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">First, <strong>Negative Working Capital<\/strong> arises when <strong>Current Liabilities<\/strong> exceed <strong>Current Asset<\/strong>s.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This dynamic <strong>arises when operating lenders<\/strong> (e.g., inventory suppliers, landlords, and customers) provide <strong>funding greater than what is required<\/strong> <strong>to fund items<\/strong> <strong>like Accounts Receivable and Inventory<\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"has-text-align-center\" style=\"font-size:25px\"><strong>Typical Sources of Negative NWC<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-1024x576.png\" alt=\"A stick figure receiving excess funding from operating lenders.\" class=\"wp-image-48864\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/stick-figure-gaining-extra-funding-from-operating-lenders.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Excess funding from Operating Lenders <strong>might sound great at first glance<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">But, as we will see, Negative Working Capital <strong>can cause significant problems when a business declines<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now let\u2019s <strong>look at how the Negative Working Capital<\/strong> concept shows up in <strong>Interviews<\/strong>.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Negative Working Capital in Interviews<\/strong><\/h3>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-1024x576.png\" alt=\"An image of a stick figure in an interview being asked about the Negative Working Capital concept.\" class=\"wp-image-48863\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/a-stick-figure-in-interview-negative-working-capital.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The topic of Negative Working Capital may arise in finance interviews.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">However, it is <strong>not nearly as common<\/strong> as other technical finance <a href=\"https:\/\/finance-able.com\/investment-banking-interview-questions\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">interview questions<\/span><\/strong><\/a> like \u2018<a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF<\/span><\/strong><\/a>\u2019 or \u2018<a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through an LBO<\/span><\/strong><\/a>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">A few common interview questions on the topic are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>What is the Working Capital Formula?<\/em><\/li>\n\n\n\n<li><em>How do you Calculate Working Capital?<\/em><\/li>\n\n\n\n<li><em>What is Negative Working Capital?<\/em><\/li>\n\n\n\n<li><em>Is Negative Working Capital bad?<\/em><\/li>\n\n\n\n<li><em>How does Negative Working Capital impact Cash Flow and Valuation?<\/em><\/li>\n<\/ul>\n\n\n\n<p style=\"font-size:18.5px\">To answer these questions, you will <strong>need to understand:<\/strong><\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li>The technical <strong>meaning of Negative Working Capital<\/strong> (<strong><a href=\"#positivevsnegativewc\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">covered below<\/span><\/a><\/strong>).<\/li>\n\n\n\n<li>The <strong>Cash Flow and Valuation impacts of Negative Net Working Capital<\/strong> (<strong><a href=\"#impactnwc\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">go to section<\/span><\/a><\/strong>).<\/li>\n<\/ol>\n\n\n\n<p style=\"font-size:18.5px\"><strong>After reading this article, you will nail all of the Interview Questions above.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Let\u2019s dive in!<\/strong><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>What is Working Capital?<\/strong><\/h2>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Let\u2019s kick off our discussion here with a <strong>quick refresher on the concept of Working Capital.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">We can <strong>view Working Capital through a few different lenses<\/strong>. We\u2019ll explore two of the most common here:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>The Accounting Definition of Working Capital.<\/strong><\/li>\n\n\n\n<li><strong>The Business Owner view of Working Capital<\/strong>.<\/li>\n<\/ol>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>The Accounting Definition of Working Capital<\/strong><\/h3>\n\n\n<!-- This site is converting visitors into subscribers and customers with OptinMonster - https:\/\/optinmonster.com :: Campaign Title: Negative Working Capital - Obfuscation -->\n<div id=\"om-on6jjtpond6j12uctwlp-holder\"><\/div>\n<script>(function(d,u,ac){var s=d.createElement('script');s.type='text\/javascript';s.src='https:\/\/a.omappapi.com\/app\/js\/api.min.js';s.async=true;s.dataset.user=u;s.dataset.campaign=ac;d.getElementsByTagName('head')[0].appendChild(s);})(document,130718,'on6jjtpond6j12uctwlp');<\/script>\n<!-- \/ OptinMonster -->\n\n\n\n<p style=\"font-size:18.5px\">The most <strong>basic definition<\/strong> of Working Capital is the <strong>Accounting definition<\/strong> that most people learn early in their Finance learning journey.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The calculation for Working Capital is <span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/www.investopedia.com\/terms\/c\/currentassets.asp#:~:text=Current%20assets%20are%20all%20the,liabilities%2C%20and%20other%20liquid%20assets.\" target=\"_blank\" rel=\"noreferrer noopener\">Current Assets<\/a><\/span> minus <a href=\"https:\/\/www.investopedia.com\/terms\/c\/currentliabilities.asp\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Current Liabilities.<\/span><\/a><\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-1024x576.png\" alt=\"the accounting definition of working capital\" class=\"wp-image-48862\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/accounting-definition-working-capital.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong><em>Note: Current Assets in the definition above excludes cash. &nbsp;<\/em><\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">This formula essentially captures a Business\u2019 <strong>investment in short-term Operating Assets<\/strong> and the degree to which the <strong>Assets cover the short-term obligations <\/strong>of the Business.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"positivevsnegativewc\" style=\"font-size:25px\"><strong>Positive vs Negative Working Capital<\/strong><\/h4>\n\n\n\n<p style=\"font-size:18.5px\">From the <strong>Working Capital formula<\/strong> above, we can see that Working Capital can have one of two potential states:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><u>Positive Working Capital<\/u><\/strong>: Current Assets &gt; Current Liabilities<\/li>\n\n\n\n<li><strong><u>Negative Working Capital<\/u><\/strong>: Current Liabilities &gt; Current Assets<\/li>\n<\/ul>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-1024x576.png\" alt=\"A summary of the definitions of positive and negative net working capital\" class=\"wp-image-49117\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/positive-vs-negative-working-capital-3.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">To begin with, the <strong>vast majority of Businesses have Positive Working Capital<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">For example, the <strong>working capital requirements of a restaurant<\/strong> like a <strong>Pizza Shop<\/strong> in most cases would result in <strong>Positive Working Capital<\/strong>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-1024x576.png\" alt=\"An image showing the common current assets and current liabilities for a pizza shop\" class=\"wp-image-49119\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/pizza-shop-current-assets-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">With a Pizza Shop, the owner\u2019s <strong>current Assets would primarily consist of Inventory<\/strong> (flour, sauce, cheese, etc.).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The Inventory suppliers are <strong>unlikely to extend overly generous payment terms<\/strong> to the Pizza Shop.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So the <strong>Pizza Shop\u2019s Current Assets<\/strong> <strong>will generally exceed Current Liabilities<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">However, as we\u2019ll see shortly, <strong>some businesses<\/strong> have ways of <strong>getting suppliers and customers to lend beyond the level of Current Asset funding needs<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we have clarified <strong>fundamental Working Capital definitions<\/strong> let\u2019s switch gears to <strong>how Business owners view Working Capital<\/strong>.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading has-text-align-center\" style=\"font-size:28px\"><strong>The Business Owner&#8217;s View of Working Capital<\/strong><\/h3>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-1024x576.png\" alt=\"An image showing CEO looking at working capital as trapped cash\" class=\"wp-image-48859\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/working-capital-trapped-cash.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">From an <strong>owner\u2019s perspective<\/strong>, the Working Capital of a Company is more likely to be viewed as \u2018<strong>Trapped Cash.<\/strong>\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In other words, Working Capital reflects the <strong>cash tied up in the Business<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">To explain further, as <strong>Current Assets increase<\/strong>, <strong>they require funding<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">Said differently, an <strong>increasing Asset is a \u2018<em>Use of Cash<\/em>.\u2019<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">On the other hand, as <strong>Current Liabilities increase<\/strong>, <strong>they offset the funding required<\/strong>. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">As such, an <strong>increasing Liability is a \u2018<em>Source of Cash<\/em>.\u2019<\/strong><\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong><em>As a Business Operator, wouldn\u2019t you prefer to have fewer \u2018Uses of Cash\u2019 and more \u2018Sources of Cash?\u2019<\/em><\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>We will dive deeper into that question in the coming sections.<\/strong><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>The Two Drivers of Negative Working Capital<\/strong><\/h2>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Earlier in the article, we said that <strong>some businesses have Negative Working Capital<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Again, to have Negative Working Capital, a <strong>Business\u2019 Current Liabilities must exceed Current Assets<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong><em>But how do we get someone to lend us more than the value of our Assets?<\/em><\/strong><\/p>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"360\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-1024x360.png\" alt=\"An image showing the two primary drivers of working capital\" class=\"wp-image-49128\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-1024x360.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-300x105.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-768x270.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-400x141.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2-624x219.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/two-ways-to-create-negative-working-capital-2.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">The answer is that <strong>there are two primary drivers of Net Working Capital<\/strong>:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>Customer prepayments (i.e.,<span class=\"has-inline-color has-black-color\">Deferred Revenue<\/span>).<\/strong><\/li>\n\n\n\n<li><strong>Delayed payment on Operating Liabilities.<\/strong><\/li>\n<\/ol>\n\n\n\n<p><\/p>\n\n\n\n<p style=\"font-size:18.5px\">In the next section, we&#8217;ll explore each of these drivers in detail. <\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Negative NWC Driver #1: Deferred Revenue<\/strong><\/h3>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Let\u2019s begin with <strong>customer prepayments<\/strong> which we formally call \u2018<strong><a href=\"https:\/\/finance-able.com\/deferred-revenue\/\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Deferred Revenue<\/span><\/a><\/strong>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>best example of Deferred Revenue is a subscription business<\/strong> where a customer pre-pays for a <strong><a href=\"https:\/\/techcrunch.com\/2017\/06\/19\/apple-music-quietly-added-a-99-annual-subscription-plan\/?guccounter=1&amp;guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&amp;guce_referrer_sig=AQAAAE3JXmwZw3XwR-FtFKTyS60Qve6m5PR4kg2SZxuogYKnrzNxIehapPLuDntu_pDcYSZl4M0pcKwGqkRUiv-AV69HQM_N31qS0yjNxSwqOS_Z75k-V6_79yMGD2kIIo6Y86KTf6YZgyWRvHmQUvRYJ25KdjVJdzrbYMaOd-hGwpnM\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">year-long subscription for a service like Apple Music<\/span><\/a><\/strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">.<\/span><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-1024x576.png\" alt=\"A customer creating deferred Revenue by pre-paying for a future subscription service\" class=\"wp-image-49129\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/customer-prepayment-deferred-revenue-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">When a <strong>customer pre-pays for a subscription <\/strong>(typically in exchange for a discount), the <strong>Business receives the cash up-front. <\/strong>We record this transaction as a <strong>Current Liability called Deferred Revenue<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We record Deferred Revenue as a <strong>Liability because the Business now owes<\/strong> the customer a <strong>service in the future<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In the meantime, the <strong>Business benefits<\/strong> <strong>from a cash inflow that is<\/strong> <strong>essentially a free loan<\/strong> until the customer receives the service.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Deferred Revenue<\/strong> is a core driver of <strong>Negative <meta charset=\"utf-8\">NWC<\/strong> for all sorts of <strong>subscription-related services from <span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/www.apple.com\/apple-music\/\" target=\"_blank\" rel=\"noreferrer noopener\">Apple Music<\/a><\/span> to <span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/www.salesforce.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Salesforce.com<\/a><\/span><\/strong>.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Negative NWC Driver #2: Accounts Payable + Accrued Liabilities<\/strong><\/h3>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-1024x576.png\" alt=\"CEO creating accounts payable by negotiating favorable terms with a supplier\" class=\"wp-image-49131\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/company-negotiating-favorable-payment-terms-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>other core driver<\/strong> of Negative Working Capital is <strong>favorable payment terms from operating suppliers,<\/strong> including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><u>Accounts Payable<\/u><\/strong>: money lent by Inventory suppliers.<\/li>\n\n\n\n<li><strong><u>Accrued Liabilities<\/u><\/strong>: money lent by other operating suppliers (landlords, utility providers, etc.).<\/li>\n<\/ul>\n\n\n\n<p style=\"font-size:18.5px\">Overly generous payment terms typically <strong>only come about when the Business has <em>significant<\/em> leverage<\/strong> over a supplier.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now let\u2019s look at a <strong>more tangible example<\/strong> of how a company benefits from extended payment terms.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:23px\"><strong>Example: Accounts Payable Creating Negative Working Capital <\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><strong><span style=\"text-decoration: underline;\">Step 1<\/span>:<\/strong> An <strong>Inventory supplier allows a Business to pay for their Inventory 60 days after they purchase it (as opposed to 30 days)<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong><span style=\"text-decoration: underline;\">Step 2<\/span>:<\/strong> The Business <strong>cycles through (i.e., sells out of) <\/strong>that Inventory <strong>in 30 days<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong><span style=\"text-decoration: underline;\">Step 3<\/span>:<\/strong> The Business now <strong>has the cash needed to repay <\/strong>the money owed for the Inventory by Day 30.<\/p>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading has-text-align-center\" style=\"font-size:30px\"><strong>30 Day Customer Collections vs 60 Day Payment<\/strong><\/h3>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/30-day-collection-vs-60-day-payment.gif\" alt=\"A company collecting customer's payments in 30 days and repaying Inventory in 60 days\" class=\"wp-image-48855\"\/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><em><strong>So, for days 31-60, the Inventory Supplier essentially provides a \u2018free loan\u2019<\/strong> <strong>to the Business<\/strong>!<\/em><\/p>\n\n\n\n<p style=\"font-size:18.5px\">And, assuming the <strong>Negative <meta charset=\"utf-8\">Working Capital grows in line<\/strong> <strong>with the growth of the Business, the dollar value of the \u2018free loan\u2019 will grow over time<\/strong>!<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-1024x576.png\" alt=\"A company collecting a customer\u2019s payments in 30 days and repaying Inventory in 60 days. \" class=\"wp-image-49142\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-working-capital-grows-with-business-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Now that we understand the underlying drivers of Negative Working Capital, we\u2019ll dive into <strong>how Negative <meta charset=\"utf-8\">NWC impacts Cash flow and Valuation<\/strong>.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"impactnwc\" style=\"font-size:35px\"><strong>Impact of Negative NWC on Cash Flow<\/strong><\/h2>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Following what we said in the section above, as a <strong>Business grows in size<\/strong>, the <strong>dollar value of the short-term funding from Negative <meta charset=\"utf-8\">NWC grows in tandem<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Said differently, each year, the <strong>dollars required to fund increasing assets<\/strong> are <strong>lower than the dollar value from increased funding<\/strong> from money lent from Customers, Inventory Suppliers, and Operating Suppliers. <\/p>\n\n\n\n<p style=\"font-size:18.5px\">Assuming Negative <strong><meta charset=\"utf-8\">NWC<\/strong> <strong>remains proportional<\/strong> to Revenue, this results in <strong>recurring excess cash inflows to the Business<\/strong>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-1024x576.png\" alt=\"An image showing the cash flow impact of negative net working capital on a growing business\" class=\"wp-image-49148\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p style=\"font-size:18.5px\">For a deeper dive into these mechanics, check out our <strong>illustrated deep-dive videos here<\/strong>:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><a href=\"https:\/\/youtu.be\/eMKESGkF2F4\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Net Working Capital in Plain English<\/span><\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/youtu.be\/Mm-NHsy3Brc\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Negative Working Capital in Plain English<\/span><\/a><\/strong><\/li>\n<\/ul>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Impact of Negative Working Capital on Valuation<\/strong><\/h2>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">In our <a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF<\/span><\/strong><\/a> article, we explained why <strong>Cash Flow<\/strong> is the <strong>underlying driver of the Valuation of a Business<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In the diagram below, from our DCF article, you can see that the <strong>change in <a href=\"https:\/\/youtu.be\/eMKESGkF2F4\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Net Working Capital<\/span><\/a>&nbsp;is a core driver of the Cash Flow<\/strong> used to value a business.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-1024x576.png\" alt=\"An image showing that net working capital is a core driver of unlevered free cash flow\" class=\"wp-image-49151\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/unlevered-cash-flow-working-capital-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">In the last section, we said that <strong>Negative <meta charset=\"utf-8\">NWC<\/strong> creates <strong>recurring extra cash inflows<\/strong> as a Business grows.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So, if a <strong>business with Negative <meta charset=\"utf-8\">NWC<\/strong> <strong>grows into perpetuity<\/strong>, its Valuation will be higher than<strong> a business with Positive Working Capital<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">To tie the last two sections together, the <strong>advantages of Negative Working Capital<\/strong> are:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>Recurring Excess Cash Flows<\/strong><\/li>\n\n\n\n<li><strong>Higher Valuation<\/strong> <\/li>\n<\/ol>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-1024x576.png\" alt=\"An image showing growing and declining businesses and the impact of negative working capital\" class=\"wp-image-49157\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/growing-business-negative-working-capital-summary-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><strong>Sounds like Business nirvana, doesn\u2019t it?<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The catch is\u2026that most businesses don\u2019t grow forever!<\/strong><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>When <meta charset=\"utf-8\">Negative Working Capital Goes Wrong<\/strong><\/h2>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>When a business with Negative <meta charset=\"utf-8\">NWC declines, it experiences <u>MAJOR<\/u> issues.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>In addition to the typical challenges<\/strong> that occur when a business declines (less profit, instability, etc.), the <strong><u>Business requires cash funding on the way down<\/u><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">To keep this simple, in the example below, we\u2019ll <strong>assume<\/strong> that all the <strong>components of<\/strong> <strong>Working Capital decline in proportion to Revenue<\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-1024x576.png\" alt=\"A business with negative working capital declines and requires cash funding\" class=\"wp-image-49159\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/declining-business-negative-working-capital-2.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">The cash funding need arises because the <strong>dollar value of Current Liabilities<\/strong> that come due <strong>exceeds<\/strong> the <strong>cash inflows from the declining Current Assets<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So, in the end, <strong>Negative <meta charset=\"utf-8\">NWC<\/strong> is a <strong>double-edged sword<\/strong>. It\u2019s fantastic on the way up and terrible on the way down!<\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-1024x576.png\" alt=\"A chart showing when negative working capital is good versus bad. \" class=\"wp-image-49162\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/negative-net-working-capital-summary-complete.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">Now let\u2019s look at a <strong>real-life example<\/strong> of Negative Working Capital in action with <a href=\"https:\/\/www.amazon.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Amazon.com<\/span><\/strong><\/a>.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Negative Working Capital Example: Amazon<\/strong><\/h2>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Since its founding, Amazon.com has maintained a Negative <meta charset=\"utf-8\">NWC<\/strong> <strong>balance.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">Negative Working Capital has provided Amazon <strong>essentially free funding that currently sits at $67 billion <\/strong>(Source: <a href=\"https:\/\/www.sec.gov\/ix?doc=\/Archives\/edgar\/data\/1018724\/000101872421000020\/amzn-20210630.htm#i5986f88ea1e04d5c91ff09fed8d716f0_16\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">sec.gov<\/span><\/strong><\/a>) as of June 30, 2021.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">What is less well appreciated is <strong>the role Negative <meta charset=\"utf-8\">NWC played in Amazon\u2019s early years<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Before Amazon\u2019s <a href=\"https:\/\/en.wikipedia.org\/wiki\/Initial_public_offering\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Initial Public Offering (IPO)<\/span><\/strong><\/a>, the Company raised $10.2 million in funding, with the majority coming from <strong><a href=\"https:\/\/www.fundable.com\/learn\/startup-stories\/amazon\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">venture capital funding<\/span><\/a><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Here\u2019s the thing, it <strong>cost ($12.5) million to run Amazon from start-up through the quarter leading up to the IPO<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So Amazon should have been short on cash by ($2.3) million, right?<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong><span style=\"text-decoration: underline;\">Wrong! Amazon\u2019s cash balance stood at $7.2 million at end of the quarter just prior to its IPO<\/span><\/strong>!<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-1024x576.png\" alt=\"An image showing that Amazon raised $10 million in funding with a question mark. \" class=\"wp-image-48868\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-missing-piece.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Source: <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1018724\/0000891020-97-000847.txt\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">sec.gov<\/span><\/strong><\/a><\/p>\n\n\n\n<div style=\"height:15px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:22px\"><strong><em>So, where did the other $9.5 million in Cash come from?<\/em><\/strong><\/p>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Answer: Amazon&#8217;s Pre-IPO Funding<\/strong><\/h3>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">The answer is that Amazon <strong>relied heavily on supplier financing<\/strong> (i.e. Negative Working Capital) to <strong>fund their operations in these earlier years<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The Company <strong>raised nearly $10 million of essentially interest-free funding<\/strong> from Suppliers via Negative Working Capital. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-1024x576.png\" alt=\"Amazon raised $10 million in funding via Accounts Payable from suppliers\" class=\"wp-image-48867\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-400x225.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital-624x351.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/amazon-funding-negative-working-capital.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Source: <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1018724\/0000891020-97-000847.txt\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">sec.gov<\/span><\/strong><\/a> <\/p>\n\n\n\n<p style=\"font-size:18.5px\">In short, <strong>if Amazon had not had <meta charset=\"utf-8\">Negative NWC<\/strong>, it would have been <strong>required to raise nearly $10 million of additional capital, resulting in far lower ownership for the founding shareholders<\/strong>.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Wrap-Up: Negative Working Capital<\/strong><\/h2>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Hopefully<\/strong>, you now have a <strong>much better understanding of the underlying idea <\/strong>and the ultimate Cash Flow and Valuation impacts of <strong>Negative Working Capital<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Negative Working Capital<\/strong> is <strong>important<\/strong> because it can have a material impact on a company\u2019s <strong>Cash Flow (and thus its Valuation)<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Let us know if you have any questions in the comments below. We\u2019d love to hear from you!<\/strong><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><\/p>\n\n\n\n<p style=\"font-size:35px\"><strong>About the Author<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignleft size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"500\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg\" alt=\"Picture of Mike Kimpel, Founder of Finance|able\" class=\"wp-image-26350\" style=\"width:266px;height:266px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg 500w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-300x300.jpg 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-100x100.jpg 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-150x150.jpg 150w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-50x50.jpg 50w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\"><meta charset=\"utf-8\"><a href=\"https:\/\/finance-able.com\/about\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Mike Kimpel<\/span><\/strong><\/a> is the <strong>Founder and CEO<\/strong> of <strong>Finance|able<\/strong>, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><meta charset=\"utf-8\">He is an <strong>Adjunct Professor<\/strong> in <strong>Columbia Business School&#8217;s <a href=\"https:\/\/www8.gsb.columbia.edu\/valueinvesting\/coursesfaculty\/valueinvestingprogram\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\">Value Investing Program<\/span><\/a><\/strong> and leads the Finance track at <a href=\"https:\/\/www.accessdistributed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Access Distributed<\/strong><\/span><\/a>, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1632814573285\"><strong class=\"schema-faq-question\"><strong><em>What if working capital is negative?<\/em><\/strong><\/strong> <p class=\"schema-faq-answer\">Negative Working Capital can be good or bad, depending on the trajectory of the Business. For example, if a business is growing, Negative Working Capital can create extra cash flow. However, a Business with Negative Working Capital declines, it will likely require funding on the way down, which is often problematic.<br\/><\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1632814600575\"><strong class=\"schema-faq-question\"><strong>Is negative working capital bad<\/strong>?<\/strong> <p class=\"schema-faq-answer\"><meta charset=\"utf-8\"\/>Negative Working Capital is a double-edged sword. It\u2019s excellent for growing Businesses (greater Cash Flow and often Valuation) but terrible for declining Businesses (requires cash investment during decline).<\/p> <\/div> <\/div>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Related Links<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-yoast-seo-related-links yoast-seo-related-links\">\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF in 5 Steps \u2013 The Ultimate Guide (2021 Updated)<\/span><\/strong><\/a><\/li>\n\n\n\n<li><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\">Investment Banking Career Path \u2013 Ultimate Guide (2021 Updated)<\/a><\/span><\/strong><\/li>\n\n\n\n<li><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/finance-able.com\/treasury-stock-method\/\">Treasury Stock Method in 3 Steps \u2013 The Complete Guide (2021)<\/a><\/span><\/strong><\/li>\n<\/ul>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"yoast-breadcrumbs\"><span><span><a href=\"https:\/\/finance-able.com\/\">Home<\/a><\/span> \u00bb <span class=\"breadcrumb_last\" aria-current=\"page\">Negative Working Capital Made Easy \u2013 The Ultimate Guide<\/span><\/span><\/div><style class=\"advgb-styles-renderer\">.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-wrap{margin-top:20px;margin-right:20px;margin-bottom:20px;margin-left:20px;padding-top:20px;padding-right:20px;padding-bottom:20px;padding-left:20px;background-color:#f4f4f4;border-top:3px solid #000000;border-right:3px solid #000000;border-bottom:3px solid #000000;border-left:3px solid #000000;border-top-left-radius:20px;border-top-right-radius:20px;border-bottom-right-radius:20px;border-bottom-left-radius:20px;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-contents-title-wrap{padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-contents-title{font-size:31px;line-height:46px;letter-spacing:0.6px;font-family:Nunito;font-weight:700;font-style:normal;text-transform:capitalize;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-wrap .kb-table-of-content-list{color:#0693e3;font-size:20.5px;line-height:35px;letter-spacing:0px;font-family:Nunito;font-weight:600;font-style:normal;text-transform:capitalize;margin-top:var(--global-kb-spacing-sm, 1.5rem);margin-right:0px;margin-bottom:0px;margin-left:0px;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-list li{margin-bottom:11px;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-list li .kb-table-of-contents-list-sub{margin-top:11px;}.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:before{background-color:#f4f4f4;}@media all and (max-width: 1024px){.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-wrap{border-top:3px solid #000000;border-right:3px solid #000000;border-bottom:3px solid #000000;border-left:3px solid #000000;}}@media all and (max-width: 767px){.kb-table-of-content-nav.kb-table-of-content-id48906_86f40d-8f .kb-table-of-content-wrap{border-top:3px solid #000000;border-right:3px solid #000000;border-bottom:3px solid #000000;border-left:3px solid #000000;}}.kb-row-layout-id48906_0968ea-ed > .kt-row-column-wrap{align-content:start;}:where(.kb-row-layout-id48906_0968ea-ed > .kt-row-column-wrap) > .wp-block-kadence-column{justify-content:start;}.kb-row-layout-id48906_0968ea-ed > .kt-row-column-wrap{column-gap:var(--global-kb-gap-md, 2rem);row-gap:var(--global-kb-gap-md, 2rem);padding-top:var(--global-kb-spacing-sm, 1.5rem);padding-bottom:var(--global-kb-spacing-sm, 1.5rem);grid-template-columns:minmax(0, 1fr);}.kb-row-layout-id48906_0968ea-ed > .kt-row-layout-overlay{opacity:0.30;}@media all and (max-width: 1024px){.kb-row-layout-id48906_0968ea-ed > .kt-row-column-wrap{grid-template-columns:minmax(0, 1fr);}}@media all and (max-width: 767px){.kb-row-layout-id48906_0968ea-ed > .kt-row-column-wrap{grid-template-columns:minmax(0, 1fr);}}.kadence-column48906_1167ae-87 > .kt-inside-inner-col{padding-top:20px;padding-right:10px;padding-bottom:0px;padding-left:10px;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col,.kadence-column48906_1167ae-87 > .kt-inside-inner-col:before{border-top-left-radius:2px;border-top-right-radius:2px;border-bottom-right-radius:2px;border-bottom-left-radius:2px;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col{column-gap:var(--global-kb-gap-sm, 1rem);}.kadence-column48906_1167ae-87 > .kt-inside-inner-col{flex-direction:column;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col > .aligncenter{width:100%;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col{background-color:#f4f4f4;}.kadence-column48906_1167ae-87 > .kt-inside-inner-col:before{opacity:0.3;}.kadence-column48906_1167ae-87{position:relative;}@media all and (max-width: 1024px){.kadence-column48906_1167ae-87 > .kt-inside-inner-col{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;flex-direction:column;justify-content:center;}}@media all and (max-width: 767px){.kadence-column48906_1167ae-87 > .kt-inside-inner-col{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;flex-direction:column;justify-content:center;}}.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;}.kb-portfolio-loop48906_42fd9b-b6 .kb-portfolio-overlay-color{background-color:rgba(23, 104, 234, 0);}.kb-portfolio-loop48906_42fd9b-b6 .kb-portfolio-overlay-border{border-top:1px solid;border-right:1px solid;border-bottom:1px solid;border-left:1px solid;}.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item:hover .kb-portfolio-overlay-color{background-color:rgba(23, 104, 234, 0.5);}.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item:hover .kb-portfolio-overlay-border{border-top:1px solid rgba(255, 255, 255, 0.8);border-right:1px solid rgba(255, 255, 255, 0.8);border-bottom:1px solid rgba(255, 255, 255, 0.8);border-left:1px solid rgba(255, 255, 255, 0.8);}.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item .entry-title{padding:5px 0px 10px 0px;margin:0px 0px 0px 0px;}.kb-portfolio-loop48906_42fd9b-b6 .kb-filter-item{border-width:0px 0px 2px 0px;padding:5px 8px 5px 8px;margin:0px 10px 0px 0px;}.kb-portfolio-loop48906_42fd9b-b6 .kb-portfolio-grid-pause-button{color:#fff;background-color:rgba(0, 0, 0, 0.5);border:1px solid transparent;}@media all and (max-width: 1024px){.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;}}@media all and (max-width: 1024px){.kb-portfolio-loop48906_42fd9b-b6 .kb-portfolio-overlay-border{border-top:1px solid;border-right:1px solid;border-bottom:1px solid;border-left:1px solid;}}@media all and (max-width: 1024px){.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item:hover .kb-portfolio-overlay-border{border-top:1px solid rgba(255, 255, 255, 0.8);border-right:1px solid rgba(255, 255, 255, 0.8);border-bottom:1px solid rgba(255, 255, 255, 0.8);border-left:1px solid rgba(255, 255, 255, 0.8);}}@media all and (max-width: 767px){.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item{border-top:2px solid #000000;border-right:2px solid #000000;border-bottom:2px solid #000000;border-left:2px solid #000000;}.kb-portfolio-loop48906_42fd9b-b6 .kb-portfolio-overlay-border{border-top:1px solid;border-right:1px solid;border-bottom:1px solid;border-left:1px solid;}.kb-portfolio-loop48906_42fd9b-b6 .kb-blocks-portfolio-grid-item:hover .kb-portfolio-overlay-border{border-top:1px solid rgba(255, 255, 255, 0.8);border-right:1px solid rgba(255, 255, 255, 0.8);border-bottom:1px solid rgba(255, 255, 255, 0.8);border-left:1px solid rgba(255, 255, 255, 0.8);}}<\/style>",
    "protected": false
  },
  "excerpt": {
    "rendered": "<p>Master the concept of Negative Working Capital so you can use it on the job in Investment Banking, Private Equity, and Investment Management. In this article, you will learn: TL;DR Want To Learn More About Finance? Check out all of our (free) deep-dive articles in our Analyst Starter Kit: Why Does Negative Working Capital Matter?&#8230;<\/p>\n",
    "protected": false
  },
  "author": 1,
  "featured_media": 49710,
  "comment_status": "open",
  "ping_status": "open",
  "sticky": false,
  "template": "",
  "format": "standard",
  "meta": {
    "_acf_changed": false,
    "om_disable_all_campaigns": false,
    "advgb_blocks_editor_width": "",
    "advgb_blocks_columns_visual_guide": "",
    "_kad_blocks_custom_css": "",
    "_kad_blocks_head_custom_js": "",
    "_kad_blocks_body_custom_js": "",
    "_kad_blocks_footer_custom_js": "",
    "_kadence_starter_templates_imported_post": false,
    "_kad_post_transparent": "",
    "_kad_post_title": "",
    "_kad_post_layout": "",
    "_kad_post_sidebar_id": "",
    "_kad_post_content_style": "",
    "_kad_post_vertical_padding": "",
    "_kad_post_feature": "",
    "_kad_post_feature_position": "",
    "_kad_post_header": false,
    "_kad_post_footer": false,
    "_kad_post_classname": "",
    "footnotes": "",
    "gopublish_seo_title": "",
    "gopublish_seo_description": ""
  },
  "categories": [118],
  "tags": [120, 123, 121, 124],
  "class_list": [
    "post-48906",
    "post",
    "type-post",
    "status-publish",
    "format-standard",
    "has-post-thumbnail",
    "hentry",
    "category-finance-in-plain-english",
    "tag-business-valuation",
    "tag-common-interview-questions",
    "tag-discounted-cash-flow-analysis",
    "tag-valuation"
  ],
  "acf": [],
  "yoast_head": "<!-- This site is optimized with the Yoast SEO Premium plugin v27.2 (Yoast SEO v27.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Negative Working Capital Made Easy \u2013 The Ultimate Guide (2021)<\/title>\n<meta name=\"description\" content=\"Looking for a Simple, Plain English explanation of Negative Working Capital? Check out our easy-to-follow, illustrated deep-dive guide.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/finance-able.com\/negative-working-capital\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Negative Working Capital Made Easy\" \/>\n<meta property=\"og:description\" content=\"An easy-to-follow, illustrated explanation of Negative Working Capital.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/finance-able.com\/negative-working-capital\/\" \/>\n<meta property=\"og:site_name\" content=\"Financeable Training\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/financeable1\" \/>\n<meta property=\"article:published_time\" content=\"2021-12-02T08:57:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-12-21T21:51:34+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png\" \/>\n\t<meta property=\"og:image:width\" content=\"720\" \/>\n\t<meta property=\"og:image:height\" content=\"325\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Mike Kimpel\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Negative Working Capital in Made Easy\" \/>\n<meta name=\"twitter:description\" content=\"A Simple, Plain English explanation of Negative Working Capital.\" \/>\n<meta name=\"twitter:creator\" content=\"@financeable1\" \/>\n<meta name=\"twitter:site\" content=\"@financeable1\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mike Kimpel\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"14 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/\"},\"author\":{\"name\":\"Mike Kimpel\",\"@id\":\"https:\/\/finance-able.com\/#\/schema\/person\/967da5e27f2e418ee5fcdfb407259ebc\"},\"headline\":\"Negative Working Capital Made Easy \u2013 The Ultimate Guide\",\"datePublished\":\"2021-12-02T08:57:00+00:00\",\"dateModified\":\"2025-12-21T21:51:34+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/\"},\"wordCount\":2127,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/finance-able.com\/#organization\"},\"image\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png\",\"keywords\":[\"Business Valuation\",\"Common Interview Questions\",\"Discounted Cash Flow Analysis\",\"Valuation\"],\"articleSection\":[\"Finance...In Plain English\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/finance-able.com\/negative-working-capital\/#respond\"]}]},{\"@type\":[\"WebPage\",\"FAQPage\"],\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/\",\"url\":\"https:\/\/finance-able.com\/negative-working-capital\/\",\"name\":\"Negative Working Capital Made Easy \u2013 The Ultimate Guide (2021)\",\"isPartOf\":{\"@id\":\"https:\/\/finance-able.com\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png\",\"datePublished\":\"2021-12-02T08:57:00+00:00\",\"dateModified\":\"2025-12-21T21:51:34+00:00\",\"description\":\"Looking for a Simple, Plain English explanation of Negative Working Capital? Check out our easy-to-follow, illustrated deep-dive guide.\",\"breadcrumb\":{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#breadcrumb\"},\"mainEntity\":[{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285\"},{\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575\"}],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/finance-able.com\/negative-working-capital\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#primaryimage\",\"url\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png\",\"contentUrl\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png\",\"width\":720,\"height\":325},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/finance-able.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Negative Working Capital Made Easy \u2013 The Ultimate Guide\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/finance-able.com\/#website\",\"url\":\"https:\/\/finance-able.com\/\",\"name\":\"Financeable Training\",\"description\":\"Approachable, Intuitive Finance Training\",\"publisher\":{\"@id\":\"https:\/\/finance-able.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/finance-able.com\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/finance-able.com\/#organization\",\"name\":\"Financeable Training\",\"url\":\"https:\/\/finance-able.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/finance-able.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Financeable-Icon-For-Google-Large.png\",\"contentUrl\":\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Financeable-Icon-For-Google-Large.png\",\"width\":528,\"height\":528,\"caption\":\"Financeable Training\"},\"image\":{\"@id\":\"https:\/\/finance-able.com\/#\/schema\/logo\/image\/\"},\"sameAs\":[\"https:\/\/www.facebook.com\/financeable1\",\"https:\/\/x.com\/financeable1\",\"https:\/\/www.linkedin.com\/company\/finance-able\",\"https:\/\/www.youtube.com\/c\/FinanceableTraining\"]},{\"@type\":\"Person\",\"@id\":\"https:\/\/finance-able.com\/#\/schema\/person\/967da5e27f2e418ee5fcdfb407259ebc\",\"name\":\"Mike Kimpel\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g\",\"caption\":\"Mike Kimpel\"},\"sameAs\":[\"http:\/\/finance-able.com\/\"],\"url\":\"https:\/\/finance-able.com\/author\/admin\/\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285\",\"position\":1,\"url\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285\",\"name\":\"What if working capital is negative?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Negative Working Capital can be good or bad, depending on the trajectory of the Business. For example, if a business is growing, Negative Working Capital can create extra cash flow. However, a Business with Negative Working Capital declines, it will likely require funding on the way down, which is often problematic.<br\/>\",\"inLanguage\":\"en-US\"},\"inLanguage\":\"en-US\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575\",\"position\":2,\"url\":\"https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575\",\"name\":\"Is negative working capital bad?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Negative Working Capital is a double-edged sword. It\u2019s excellent for growing Businesses (greater Cash Flow and often Valuation) but terrible for declining Businesses (requires cash investment during decline).\",\"inLanguage\":\"en-US\"},\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->",
  "yoast_head_json": {
    "title": "Negative Working Capital Made Easy \u2013 The Ultimate Guide (2021)",
    "description": "Looking for a Simple, Plain English explanation of Negative Working Capital? Check out our easy-to-follow, illustrated deep-dive guide.",
    "robots": {
      "index": "index",
      "follow": "follow",
      "max-snippet": "max-snippet:-1",
      "max-image-preview": "max-image-preview:large",
      "max-video-preview": "max-video-preview:-1"
    },
    "canonical": "https:\/\/finance-able.com\/negative-working-capital\/",
    "og_locale": "en_US",
    "og_type": "article",
    "og_title": "Negative Working Capital Made Easy",
    "og_description": "An easy-to-follow, illustrated explanation of Negative Working Capital.",
    "og_url": "https:\/\/finance-able.com\/negative-working-capital\/",
    "og_site_name": "Financeable Training",
    "article_publisher": "https:\/\/www.facebook.com\/financeable1",
    "article_published_time": "2021-12-02T08:57:00+00:00",
    "article_modified_time": "2025-12-21T21:51:34+00:00",
    "og_image": [
      {
        "width": 720,
        "height": 325,
        "url": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
        "type": "image\/png"
      }
    ],
    "author": "Mike Kimpel",
    "twitter_card": "summary_large_image",
    "twitter_title": "Negative Working Capital in Made Easy",
    "twitter_description": "A Simple, Plain English explanation of Negative Working Capital.",
    "twitter_creator": "@financeable1",
    "twitter_site": "@financeable1",
    "twitter_misc": {
      "Written by": "Mike Kimpel",
      "Est. reading time": "14 minutes"
    },
    "schema": {
      "@context": "https:\/\/schema.org",
      "@graph": [
        {
          "@type": "Article",
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/#article",
          "isPartOf": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/"
          },
          "author": {
            "name": "Mike Kimpel",
            "@id": "https:\/\/finance-able.com\/#\/schema\/person\/967da5e27f2e418ee5fcdfb407259ebc"
          },
          "headline": "Negative Working Capital Made Easy \u2013 The Ultimate Guide",
          "datePublished": "2021-12-02T08:57:00+00:00",
          "dateModified": "2025-12-21T21:51:34+00:00",
          "mainEntityOfPage": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/"
          },
          "wordCount": 2127,
          "commentCount": 0,
          "publisher": { "@id": "https:\/\/finance-able.com\/#organization" },
          "image": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/#primaryimage"
          },
          "thumbnailUrl": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
          "keywords": [
            "Business Valuation",
            "Common Interview Questions",
            "Discounted Cash Flow Analysis",
            "Valuation"
          ],
          "articleSection": ["Finance...In Plain English"],
          "inLanguage": "en-US",
          "potentialAction": [
            {
              "@type": "CommentAction",
              "name": "Comment",
              "target": [
                "https:\/\/finance-able.com\/negative-working-capital\/#respond"
              ]
            }
          ]
        },
        {
          "@type": ["WebPage", "FAQPage"],
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/",
          "url": "https:\/\/finance-able.com\/negative-working-capital\/",
          "name": "Negative Working Capital Made Easy \u2013 The Ultimate Guide (2021)",
          "isPartOf": { "@id": "https:\/\/finance-able.com\/#website" },
          "primaryImageOfPage": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/#primaryimage"
          },
          "image": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/#primaryimage"
          },
          "thumbnailUrl": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
          "datePublished": "2021-12-02T08:57:00+00:00",
          "dateModified": "2025-12-21T21:51:34+00:00",
          "description": "Looking for a Simple, Plain English explanation of Negative Working Capital? Check out our easy-to-follow, illustrated deep-dive guide.",
          "breadcrumb": {
            "@id": "https:\/\/finance-able.com\/negative-working-capital\/#breadcrumb"
          },
          "mainEntity": [
            {
              "@id": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285"
            },
            {
              "@id": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575"
            }
          ],
          "inLanguage": "en-US",
          "potentialAction": [
            {
              "@type": "ReadAction",
              "target": [
                "https:\/\/finance-able.com\/negative-working-capital\/"
              ]
            }
          ]
        },
        {
          "@type": "ImageObject",
          "inLanguage": "en-US",
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/#primaryimage",
          "url": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
          "contentUrl": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
          "width": 720,
          "height": 325
        },
        {
          "@type": "BreadcrumbList",
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/#breadcrumb",
          "itemListElement": [
            {
              "@type": "ListItem",
              "position": 1,
              "name": "Home",
              "item": "https:\/\/finance-able.com\/"
            },
            {
              "@type": "ListItem",
              "position": 2,
              "name": "Negative Working Capital Made Easy \u2013 The Ultimate Guide"
            }
          ]
        },
        {
          "@type": "WebSite",
          "@id": "https:\/\/finance-able.com\/#website",
          "url": "https:\/\/finance-able.com\/",
          "name": "Financeable Training",
          "description": "Approachable, Intuitive Finance Training",
          "publisher": { "@id": "https:\/\/finance-able.com\/#organization" },
          "potentialAction": [
            {
              "@type": "SearchAction",
              "target": {
                "@type": "EntryPoint",
                "urlTemplate": "https:\/\/finance-able.com\/?s={search_term_string}"
              },
              "query-input": {
                "@type": "PropertyValueSpecification",
                "valueRequired": true,
                "valueName": "search_term_string"
              }
            }
          ],
          "inLanguage": "en-US"
        },
        {
          "@type": "Organization",
          "@id": "https:\/\/finance-able.com\/#organization",
          "name": "Financeable Training",
          "url": "https:\/\/finance-able.com\/",
          "logo": {
            "@type": "ImageObject",
            "inLanguage": "en-US",
            "@id": "https:\/\/finance-able.com\/#\/schema\/logo\/image\/",
            "url": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Financeable-Icon-For-Google-Large.png",
            "contentUrl": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Financeable-Icon-For-Google-Large.png",
            "width": 528,
            "height": 528,
            "caption": "Financeable Training"
          },
          "image": {
            "@id": "https:\/\/finance-able.com\/#\/schema\/logo\/image\/"
          },
          "sameAs": [
            "https:\/\/www.facebook.com\/financeable1",
            "https:\/\/x.com\/financeable1",
            "https:\/\/www.linkedin.com\/company\/finance-able",
            "https:\/\/www.youtube.com\/c\/FinanceableTraining"
          ]
        },
        {
          "@type": "Person",
          "@id": "https:\/\/finance-able.com\/#\/schema\/person\/967da5e27f2e418ee5fcdfb407259ebc",
          "name": "Mike Kimpel",
          "image": {
            "@type": "ImageObject",
            "inLanguage": "en-US",
            "@id": "https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g",
            "url": "https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g",
            "contentUrl": "https:\/\/secure.gravatar.com\/avatar\/161bb651581d0cb6b0401dde037e591d4550b0db25a0c549df7a7faf98df2b72?s=96&d=mm&r=g",
            "caption": "Mike Kimpel"
          },
          "sameAs": ["http:\/\/finance-able.com\/"],
          "url": "https:\/\/finance-able.com\/author\/admin\/"
        },
        {
          "@type": "Question",
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285",
          "position": 1,
          "url": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814573285",
          "name": "What if working capital is negative?",
          "answerCount": 1,
          "acceptedAnswer": {
            "@type": "Answer",
            "text": "Negative Working Capital can be good or bad, depending on the trajectory of the Business. For example, if a business is growing, Negative Working Capital can create extra cash flow. However, a Business with Negative Working Capital declines, it will likely require funding on the way down, which is often problematic.<br\/>",
            "inLanguage": "en-US"
          },
          "inLanguage": "en-US"
        },
        {
          "@type": "Question",
          "@id": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575",
          "position": 2,
          "url": "https:\/\/finance-able.com\/negative-working-capital\/#faq-question-1632814600575",
          "name": "Is negative working capital bad?",
          "answerCount": 1,
          "acceptedAnswer": {
            "@type": "Answer",
            "text": "Negative Working Capital is a double-edged sword. It\u2019s excellent for growing Businesses (greater Cash Flow and often Valuation) but terrible for declining Businesses (requires cash investment during decline).",
            "inLanguage": "en-US"
          },
          "inLanguage": "en-US"
        }
      ]
    }
  },
  "author_meta": {
    "display_name": "Mike Kimpel",
    "author_link": "https:\/\/finance-able.com\/author\/admin\/"
  },
  "featured_img": "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital-300x135.png",
  "taxonomy_info": {
    "category": [{ "value": 118, "label": "Finance...In Plain English" }],
    "post_tag": [
      { "value": 120, "label": "Business Valuation" },
      { "value": 123, "label": "Common Interview Questions" },
      { "value": 121, "label": "Discounted Cash Flow Analysis" },
      { "value": 124, "label": "Valuation" }
    ]
  },
  "featured_image_src_large": [
    "https:\/\/finance-able.com\/wp-content\/uploads\/2021\/09\/Negative-Working-Capital.png",
    720,
    325,
    false
  ],
  "author_info": {
    "display_name": "Mike Kimpel",
    "author_link": "https:\/\/finance-able.com\/author\/admin\/"
  },
  "comment_info": 366,
  "category_info": [
    {
      "term_id": 118,
      "name": "Finance...In Plain English",
      "slug": "finance-in-plain-english",
      "term_group": 0,
      "term_taxonomy_id": 118,
      "taxonomy": "category",
      "description": "",
      "parent": 0,
      "count": 12,
      "filter": "raw",
      "cat_ID": 118,
      "category_count": 12,
      "category_description": "",
      "cat_name": "Finance...In Plain English",
      "category_nicename": "finance-in-plain-english",
      "category_parent": 0
    }
  ],
  "tag_info": [
    {
      "term_id": 120,
      "name": "Business Valuation",
      "slug": "business-valuation",
      "term_group": 0,
      "term_taxonomy_id": 120,
      "taxonomy": "post_tag",
      "description": "",
      "parent": 0,
      "count": 3,
      "filter": "raw"
    },
    {
      "term_id": 123,
      "name": "Common Interview Questions",
      "slug": "common-interview-questions",
      "term_group": 0,
      "term_taxonomy_id": 123,
      "taxonomy": "post_tag",
      "description": "",
      "parent": 0,
      "count": 9,
      "filter": "raw"
    },
    {
      "term_id": 121,
      "name": "Discounted Cash Flow Analysis",
      "slug": "discounted-cash-flow-analysis",
      "term_group": 0,
      "term_taxonomy_id": 121,
      "taxonomy": "post_tag",
      "description": "",
      "parent": 0,
      "count": 8,
      "filter": "raw"
    },
    {
      "term_id": 124,
      "name": "Valuation",
      "slug": "valuation",
      "term_group": 0,
      "term_taxonomy_id": 124,
      "taxonomy": "post_tag",
      "description": "",
      "parent": 0,
      "count": 7,
      "filter": "raw"
    }
  ],
  "coauthors": [],
  "tax_additional": {
    "categories": {
      "linked": [
        "<a href=\"https:\/\/finance-able.com\/category\/finance-in-plain-english\/\" class=\"advgb-post-tax-term\">Finance...In Plain English<\/a>"
      ],
      "unlinked": [
        "<span class=\"advgb-post-tax-term\">Finance...In Plain English<\/span>"
      ]
    },
    "tags": {
      "linked": [
        "<a href=\"https:\/\/finance-able.com\/category\/finance-in-plain-english\/\" class=\"advgb-post-tax-term\">Business Valuation<\/a>",
        "<a href=\"https:\/\/finance-able.com\/category\/finance-in-plain-english\/\" class=\"advgb-post-tax-term\">Common Interview Questions<\/a>",
        "<a href=\"https:\/\/finance-able.com\/category\/finance-in-plain-english\/\" class=\"advgb-post-tax-term\">Discounted Cash Flow Analysis<\/a>",
        "<a href=\"https:\/\/finance-able.com\/category\/finance-in-plain-english\/\" class=\"advgb-post-tax-term\">Valuation<\/a>"
      ],
      "unlinked": [
        "<span class=\"advgb-post-tax-term\">Business Valuation<\/span>",
        "<span class=\"advgb-post-tax-term\">Common Interview Questions<\/span>",
        "<span class=\"advgb-post-tax-term\">Discounted Cash Flow Analysis<\/span>",
        "<span class=\"advgb-post-tax-term\">Valuation<\/span>"
      ]
    }
  },
  "comment_count": "0",
  "relative_dates": {
    "created": "Posted 5 years ago",
    "modified": "Updated 6 months ago"
  },
  "absolute_dates": {
    "created": "Posted on December 2, 2021",
    "modified": "Updated on December 21, 2025"
  },
  "absolute_dates_time": {
    "created": "Posted on December 2, 2021 3:57 am",
    "modified": "Updated on December 21, 2025 4:51 pm"
  },
  "featured_img_caption": "",
  "series_order": "",
  "gopublish_integration": {
    "active": true,
    "seo_fields_available": true,
    "seo_fields": {
      "title": "gopublish_seo_title",
      "description": "gopublish_seo_description"
    }
  },
  "_links": {
    "self": [
      {
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/posts\/48906",
        "targetHints": { "allow": ["GET"] }
      }
    ],
    "collection": [
      { "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/posts" }
    ],
    "about": [
      { "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/types\/post" }
    ],
    "author": [
      {
        "embeddable": true,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/users\/1"
      }
    ],
    "replies": [
      {
        "embeddable": true,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/comments?post=48906"
      }
    ],
    "version-history": [
      {
        "count": 223,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/posts\/48906\/revisions"
      }
    ],
    "predecessor-version": [
      {
        "id": 56398,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/posts\/48906\/revisions\/56398"
      }
    ],
    "wp:featuredmedia": [
      {
        "embeddable": true,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/media\/49710"
      }
    ],
    "wp:attachment": [
      {
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/media?parent=48906"
      }
    ],
    "wp:term": [
      {
        "taxonomy": "category",
        "embeddable": true,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/categories?post=48906"
      },
      {
        "taxonomy": "post_tag",
        "embeddable": true,
        "href": "https:\/\/finance-able.com\/wp-json\/wp\/v2\/tags?post=48906"
      }
    ],
    "curies": [
      { "name": "wp", "href": "https:\/\/api.w.org\/{rel}", "templated": true }
    ]
  }
}