as far as cash flow in concerned, HIGHER ASSETS = LOWER CF and HIGHER LIABILITIES = higher CF think about Dell and Walmart – they throw off mountains of cash qtr after qtr b/c they STRETCH payables and pay vendors at the LAST MINUTE. not only that, but Dell, in particular, carries LITTLE TO NO INVENTORY. this is a good business model from a CF standpoint and remembering how these business generate solid ROICs will help you on the FSA section.
What!!! Negative NWC is a bad thing… means that the company is not balancing its Current asset=Current liabilities.
" Negative NWC is a bad thing… means that the company is not balancing its Current asset=Current liabilities." not really. See Volume 5 of the CFAI curricula: Corporate Finance.
Daj, ok this is true but be carefull to not generalise the concept. Of course it strongly depends in which sector a company is operating. Some companies can generate cash so quickly they actually have a negative working capital. This is generally true of companies in the restaurant business such as McDonalds or other companies such as Wal Mart as in these companies, products are delivered and sold to the customer before the company ever pays for them. But this is not valid for all the companies
"Daj, ok this is true but be carefull to not generalise the concept. Of course it strongly depends in which sector a company is operating. " Once again, strangedays proves his/her prowess on the board – THANK YOU! yes, you are right, NWC should not be generalized. however, people should make a note of those pages in Vol 5. I could be wrong, but the CFAI paints the negative NWC scenario in a favorable light. and you are right, restaurants run at neg WC given the dominance of cash transactions.