New Delhi, Oct. 20 -- 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...