Working capital is considered as excess of Current assets over current liabilities but companies like HUL, Godrej, Bharti airtel, Hero Motorcorp, faces negative working capital in their operating life. Thus their current liabilities exceed their current assets in some years.
What is your belief in this regard, can working capital ever be negative or Zero for any company? If yes than what shall be the repercussions if a company has (a) dearth of Working Capital and (b) overload of Working Capital?
Answers
Answer:
Yes, possible
Explanation:
Yes it is possible for a company to have zero or negative working capital.
Working capital takes account of the assets of the company as well as its liabilities. When the liabilities are more than the assets in hand, then the company would have zero or negative working capital. If a company has negative working capital, it will hamper its long term investments and financial growth.
Higher the working capital, more will be its potential to grow in the business
Working Capital
Explanation:
Working capital of a company are the funds need to meet the day-to-day operations of the business. It typically includes the salaries, inventory purchases and equipment needs.
Zero or low working capital: A lack of working capital may jeopardize a company's ability to finance its day-to-day operations, and the business will not be able to function. A lack of working capital makes it difficult for a company to prepare for emergencies.
Some large corporations have negative working capital, where their short-term debts outweigh their liquid assets. The only entities capable of remaining solvent amid these circumstances are behemoth corporations with significant brand recognition and robust selling power. Such companies are able to quickly generate additional funds, either by shuffling money from other operational silos, or by acquiring long-term debt. These companies can easily meet short-term expenses even if their assets are tied up in long-term investments, properties, or equipment rentals.
High working capital:
Companies with high amounts of working capital possess sufficient liquid funds needed to meet their short-term obligations. The higher a company's working capital is, the more efficiently it functions. High working capital signals that a company is shrewdly managed and also suggests that it harbors the potential for strong growth.