A company’s working capital turns negative when its current liabilities, such as dues payable, outweigh its current assets, such as cash, inventory, and receivables. One may be tempted to think that because assets are lower than liabilities, it is a sign of distress.
However, when it comes to current assets and liabilities, that is not necessarily the case. In fact, as we shall see in this article, it could be the exact opposite. While any company can have its working capital slip into negative territory once in a while, a consistently negative working capital deserves a closer look.
If all pieces fall into place, it may very well turn out that such a business is running extremely efficiently on effective cash-flow management. The company could be selling its inventory (low inventory) and pocketing the sales proceeds (low receivables) before any of its payables come due (high payables). Result? A negative working capital, but a positive business strategy.
Let’s look at three such companies.
Nestlé India
, the company behind household brands such as Maggi, Nescafé, and KitKat, has been struggling with subdued growth due to sluggish mass urban demand. Making matters worse, high raw-material prices, such as those of coffee and cocoa, have been eroding margins.
Q1FY26 saw a modest 6% year-on-year growth in revenues, even as gross margins compressed by 249 basis points. While the government turbo-charged the ongoing festive season with GST 2.0, consumers are likely to have deferred purchases until the new GST rates came into effect on 22 September. This suggests that we may see yet another mellow quarter reported in the earnings on 16 October. But a recovery can be expected from Q3 onwards.
Meanwhile, efficient working-capital management has helped it alleviate some of the stress. As expected from a business with modest growth, it has been taking longer to convert inventory into sales—inventory days have increased. But on account of its size and market leadership, the Maggi maker has managed to negotiate better payment terms with vendors: higher payable days. Its receivable days have been maintained in mid-single digits.
This has allowed the company to maintain a negative working-capital cycle, which in turn has helped it contain its dependence on working-capital loans despite slow growth. The company’s positive operating cash flows and negative net debt position reaffirm this point of view—its negative working capital should be seen in a positive light.
Thanks to this operational resilience (along with relatively higher demand resilience of its target market), the stock has held up better than the broader FMCG sector in recent years.
Maruti Suzuki
was the first car for many households in India. But in recent years, Maruti’s signature small cars have lost ground to higher-end cars. While the post-pandemic YOLO (you only live once) trend drove up premiumization in India, the management had also blamed slow economic growth and unsupportive government policies for sluggish trade-ups from two-wheelers to small cars. The company has been clocking stagnant sales for at least a couple of years, and its stock has fallen behind as well.
That said, operational efficiency, as seen in its consistently negative working capital, has helped blunt the impact. Slow sales have resulted in inventory hanging around for 12.3 days in FY25, up from 10.7 days in FY24. But this is still low, thanks to prudent management of capacities, pushing primary sales, as well as diversification towards new segments and markets.
Receivables also continue to be converted into cash flows in a timely manner, thanks to a high proportion of sales achieved through dealers with bank-funded channels. The company has also managed to negotiate better payment terms with its vendors, resulting in creditor days expanding by four days to 41.9 days in FY25.
Of course, one needs more than working-capital management for a sustained recovery. In this regard, GST 2.0 promises to finish what monetary easing and slashed income tax rates had started. Meanwhile, Maruti’s new SUVs, such as Victoris, have managed to capture buyers’ attention through their premium appeal and increased focus on safety. Q2 earnings are due at the end of this month, but the festive mood, along with new launches, is expected to drive up sales from Q3 onwards.
Bharti Airtel
Unlike Nestlé India and Maruti Suzuki, which have managed to tide over tough times relatively unharmed, thanks to their negative working capital, the story of is different. The entire telecom industry tends to have very few current assets, resulting in negative working capital.
Their assets are primarily large and long-term—think towers, poles, and data-centres. It is primarily equipment, such as routers and modems, that comes under current assets. They receive advance payments from their prepaid customers, resulting in low receivables. Telecom majors also have the buyer power required to negotiate better payment terms with vendors.
However, it is essential to note that, despite all telecom companies possessing these characteristics for negative working capital, only a select few have fundamentally strong businesses. While government-owned telecom companies are weighed down by massive employee costs and unproductive fixed assets, many private businesses were knocked down by regulatory headwinds.
Airtel is among the last two standing with profitable operations. It has managed to hold its ground, thanks to its deeper pockets and persistence. Its positioning as a market leader, offering premium quality and service, has allowed it to raise subscription fees in an oligopolistic industry without significantly eroding its subscriber base.
Devil in the detail
The case of Airtel in the telecom industry is not an exception. Negative working capital is not a positive signal in and of itself. Investors need to look for corroborating metrics to confirm the company’s operating efficiency. For example, if observed in a company with negative or declining operating cash flows, negative working capital does not necessarily indicate superior cash-flow management. This can be further reaffirmed by examining inventory turnover, which should be high and growing in tandem with robust revenue growth in a company with strong cash-flow management.
A negative working capital that comes from long payable days and/or short receivable days should also be analysed with a fine-toothed comb. Apparently, fast-moving receivables may be based on fake sales, like the round-tripping of funds. And delayed payables could be a sign of stressed financials, making it difficult to clear dues timely, rather than a consequence of better-negotiated terms with vendors.
History is littered with evidence of negative working capital being an early warning sign of distress. Such companies eventually resort to piling on debt to plug the gap. This was evident in DHFL—years of negative working capital, along with intermittently negative operating cash flows, were followed by a sudden escalation in debt before the company went bankrupt. Similarly, Jet Airways and Kingfisher had also reported negative working capital in their final years when they could not repay their dues.
To sum it up, if a company regularly reports negative working capital with neither the above red flags nor governance issues, such as audit comments, delays in clearing dues, and heavy related-party transactions, it could be a sign of robust cash-flow management. But only if manageable levels of debt, and healthy growth in revenues and operating cash flows back it up.
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Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.