Companies that use their suppliers' money for their own benefit
Normally, if you borrow money from a bank, you pay interest on the loan. Imagine a situation that the bank gives you money and says that you need not pay any interest at all. Won't that be wonderful? Now pinch yourself. In real life, such a loan is not available. Or is it?
There are certain companies that have the ability to use others' money for a limited period without paying them any interest. These companies have negative working capital. Put simply, working capital is the amount required to run a business on day-to-day basis. A negative working capital means that the current liabilities are more than the current assets.
You guessed it right. Generally, negative or low working capital is an undesirable attribute. It means the company is facing a shortage of funds to meet its daily requirements, and its ability to meet its debt or trade liability is questionable. How come then it is a positive sign?
The companies listed below receive cash from their distributors immediately, but they pay their suppliers flexibly. This makes their working capital negative. But this negative working capital stems not from some business weakness but from their dominant positions. Such a characteristic is although very rare.
To arrive at the list below, we have filtered out the companies which need cash regularly to service their debt or pay their suppliers. While calculating working capital, we subtracted current investments from current assets, since they are not related to operations. We also removed short-term borrowings from current liabilities, which ensured that the company is using its suppliers' or customers' money. We also ensured a negative cash-conversion cycle. A negative cash-conversion cycle indicates that these companies get cash from their customers faster than they pay their suppliers.