Negative operating working capital is defined as?

Negative operating working capital is defined as?

• A. where operating current liabilities are greater than operating current assets.
• B. where cash exceeds total debt.
• C. where receivables exceed payables.
• D. where inventory exceeds cash.

Answer: (A)

Negative operating working capital means the portion of the balance sheet used to fund day-to-day operations is more dependent on supplier financing than on cash tied up in operations. It occurs when operating current liabilities exceed operating current assets. In formula terms, operating working capital = operating current assets minus operating current liabilities; a negative result arises when the liabilities used to run the business outpace the assets tied to operations. This setup often reflects favorable supplier terms or customer prepayments and indicates the company can fund its operations through payables rather than needing to hold ample inventories or receivables. The other statements describe cash, debt, or non-operating components and do not capture the balance between operating assets and operating liabilities.

Negative operating working capital means the portion of the balance sheet used to fund day-to-day operations is more dependent on supplier financing than on cash tied up in operations. It occurs when operating current liabilities exceed operating current assets. In formula terms, operating working capital = operating current assets minus operating current liabilities; a negative result arises when the liabilities used to run the business outpace the assets tied to operations. This setup often reflects favorable supplier terms or customer prepayments and indicates the company can fund its operations through payables rather than needing to hold ample inventories or receivables. The other statements describe cash, debt, or non-operating components and do not capture the balance between operating assets and operating liabilities.