Spriha Sparsh In: 1. Financial Accounting > Miscellaneous Can working capital be negative? Can working capital be negative? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Radhika 2021-11-18T06:56:13+00:00Added an answer on November 18, 2021 at 6:56 am This answer was edited. Working Capital is the capital used in the daily operations of the business. It is calculated as the difference between current assets and current liabilities. Gross working capital means current assets and net working capital means the difference between current assets and current liabilities. Working Capital indicates the short-term liquidity of its business. It means the ability of a company to meet its daily requirements through short-term financing. Working Capital can be; Positive Zero, or Negative Positive or negative working capital follows a simple rule of math. If current assets are more than current liabilities, working capital is positive and if current assets are less than current liabilities, working capital is negative. When current assets are equal to current liabilities, working capital is zero. Negative working capital for a short period means that the company has made a big payment to its vendors, or a significant increase in the creditor’s account because of credit purchases. However, if working capital is negative for a longer period it indicates that the company is struggling with its operating requirements or that it has to finance its daily operations through long-term borrowings. The current ratio for a company is calculated as: Current Assets divided by Current Liabilities. Working Capital and Current Ratio are interrelated. If the Current Ratio is more than 1, it means current assets exceed current liabilities and Working Capital is positive. However, if the Current Ratio is less than 1, it means current liabilities exceed current assets and Working Capital is negative. For example- If Current Assets are Rs 50,000 and Current Liabilities are Rs 70,000 then Working Capital= Current Assets – Current Liabilities WC = Rs 70,000 – Rs 50,000 WC = Rs. 20,000 Current Ratio = Current Assets / Current Liabilities CR = Rs.50,000/ Rs. 70,000 CR = 0.71< 1 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?