I learned that "NWC = Inventories + receivables - payables". Everyone is stating that SaaS companies do have negative NWC, due to the deferred revenue.
However, since when is deferred revenue part of NWC? Or is this due to payables?
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NWC= CA - CL. Deferred revenue would be part of current liabilities and would result in some cases in negative NWC because the company received the money but have not performed the service.
I think that what’s key here as well is that the deferred revenue in this case will have to result in outflows in less than one year , and therefore be in current liabilities instead of long term liabilities. I am imagining this is a scenario where a software company collects the cash at the beginning of a 6 month subscription (e.g in this example the customer pays upfront for 6 month subscription), acknowledges DR, and then the customer gets the software during the 6 months. NWC goes down at the beginning, and then , and someone correct me if wrong here , goes up when the liability goes down and retained earnings (?) go up after the 6 months ?
This is why you have ST DR and LT DR
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