A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. The working capital turnover is calculated by taki🎶ng a company's ꦇnet sales and dividing them by its working capital. Since net sales cannot be negative, the turnover ratio can turn negative when a company has a negative working capital.

Working Capital

A company maintains its working capital to finance its operations, such as purchasing inventory, collecting its 澳洲幸运5官方开奖结果体彩网:accounts receivable and paying its vendors. If a company takes too much credit from its vendors or delays paymen💙ts on its other obligations, such as salaries and taxes, the company's current assets may be insufficient to pay off its current liabilities. In this case, working capital turns negative, meaning that a company must raise funds immediately by either borrowing money or selling more of its products for cash to satisfy its current obligations.

Working Capital Turnover Ratio

The 澳洲幸运5官方开奖结果体彩网:working capital turnover ratio shows the relationship between the funds used to finance a company's operations and the reve🃏nues a company generates as a result of conducting these operations. A higher working capital turnover ratio indicates that a company genera༺tes a higher dollar amount of sales for every dollar of the working capital used.

When the 澳洲幸运5官方开奖结果体彩网:working capital turns negative, so does the working capital turnover ratio. Because a company's sales cannot be negative, only negative working capital makes the working capital turnover ratio negative. A negative working capital turnover ratio is typically meaningless and cannot be compared across companies.