How
to Interpret a NEGATIVE Working Capital Requirement
?
A negative
WCR means a net source of funds.
In a few economic sectors
such as the supermarket business, WCR can
be negative : firms collect their sales before
they pay their suppliers ; high inventory
turnover
Example
| |
31.12.21 |
31.12.22 |
31.12.23 |
| Short
term funds used to finance short
term assets |
| Accounts
Payable |
216 |
220 |
222 |
| Accruals |
56 |
55 |
65 |
| Total of short
term funds |
272 |
275 |
287 |
| Short
term assets to be financed by short
term funds
|
| Accounts
Receivable |
132 |
152 |
145 |
| Inventory |
67 |
76 |
66 |
| Prepaid
expenses |
35 |
25 |
45 |
| Total of short
term assets |
234 |
253 |
256 |
| Net Source of
funds (WCR) |
+ 38
|
+ 22
|
+
31 |
|
The variation of sources
of funds
| |
2022 |
2023 |
| |
Sources |
Uses |
Sources |
Uses |
| Accounts Payable |
4 |
- |
2 |
- |
| Accruals |
- |
1 |
10 |
- |
| Accounts Receivable |
- |
20 |
7 |
- |
| Inventory |
- |
9 |
10 |
- |
| Prepaid expenses |
10 |
- |
- |
20 |
| Total |
14 |
30 |
29 |
20 |
| Net Sources of funds |
16 |
- |
9 |
- |
|
Sources :
Understanding
Financial Statements, 1999,
Marc Bertonèche, Ph. D. in Finance
from the Northwestern University, Professor
at the Bordeaux University and at Sciences-PO
Paris, Visiting Professor at Harvard Business
School and Oxford University.
© Bernard Jaquier, Professor Emeritus & Dr Honoris Causa, Lausanne, Switzerland, 2024
