Practice question · True or false
A firm with negative net working capital is always insolvent.
Hints
- Ask whether the shortfall is structural or a feature of the model.
- Businesses collecting cash before paying suppliers routinely run this way.
Show the answer
False
Why
Negative working capital means current liabilities exceed current assets, but it does not mean insolvency. Supermarkets routinely run negative working capital, they sell inventory for cash before they must pay suppliers. Context determines whether the negative is dangerous or deliberate.
Practise The Balance Sheet
The app has 6 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on The Balance Sheet
- Current or non-current? Classify each item.
- Match each balance-sheet ratio to what it measures.
- A supermarket chain runs with negative working capital year after year and is perfectly healthy. How?
- A company has current assets 80 and current liabilities 110. What does this tell us?
- Which items belong in the equity section of the balance sheet?
- Order balance-sheet items from most liquid to least liquid.