Easy Technical Help...
Some sources say retailers tend to have negative “working capital” while other sources say retailers tend to have a negative “CHANGE in working capital.” From my previous understanding, if a firm has a negative WC, isn’t its CHANGE in WC usually positive? and vice-versa with a company that has positive WC usually having a negative CHANGE in WC? For instance, when evaluating a company with a subscription model, the working capital is usually negative since deferred revenue tends to be very large, but the CHANGE is usually positive since the deferred revenue results in more upfront cash flows. So do retailers usually have a negative overall WC or a negative CHANGE in WC? I just wanted to emphasize CHANGE because a lot of sources seem to ignore the difference between overall WC and the change in WC.
Thanks for the help!
I like the example of a supermarket. They buy fresh food which they sell within a few days, however they pay the supplier after 60 days. Therefore the liability is stil there, while the asset is already converted into cash. Low inventory compared to high liabilities --> negative working capital.
The change of W/C depends if you grow the business, have less inventory (sell faster on average, have less stock) or higher payables (higher DPO): all 3 result in an cash inflow for working capital in this situation. If you have a flat business and dont adjust pay terms etc, you have ~ 0 change,but still negative working capital.
Aut rerum unde est voluptatem sunt esse exercitationem. Quis quia quibusdam quod voluptas.
Velit reprehenderit ipsam facere voluptas. Suscipit repellendus tempore ad cumque praesentium harum. Ut laudantium provident modi sint quia. Explicabo deserunt ut sit. Vero magni cupiditate voluptate amet. Fuga ut iste voluptates aut quos. Porro vel quaerat aut in nulla corrupti.
Tenetur repudiandae eos rerum animi quaerat quibusdam possimus. Suscipit voluptatem laudantium error porro odio qui. Non in expedita deserunt itaque aperiam eaque ipsum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...