What is a common reason for a company to maintain negative working capital?

Maintaining negative working capital can often be attributed to favorable cash terms from suppliers. When a company has negotiated terms that allow it to delay payments to suppliers while still receiving goods and services, it can operate with less cash on hand. This means the company can use the funds that would typically be tied up in inventory or accounts payable to invest in other areas, such as growth initiatives or reducing debt.

This strategy is particularly common in industries where companies have strong bargaining power with suppliers or in scenarios where fast inventory turnover is possible. It allows companies to improve cash flow and efficiency, turning the capital they have into more immediate use, despite the seeming risk of having current liabilities exceeding current assets.

In contrast, low sales volume, high levels of debt, or high operating expenses would often necessitate careful management of working capital to maintain sufficiency in meeting obligations. These situations typically stress a company's cash flow rather than support a model of maintaining negative working capital.