Comment on the following: Negative working capital is a sign that the company may be facing serious financial trouble or bankruptcy.

Generally, negative working capital is a sign that the company may be facing bankruptcy or a serious financial trouble. Under the best circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor - all of which result in a lower credit rating. A lower credit rating means banks charge a higher interest rate, which can cost a corporation a lot of money over time. Thus, a Company with negative working capital may lack the funds necessary for growth of the company which may further lead to bankruptcy and financial trouble for the company. In some rare circumstances, a negative working capital can also be a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis and convert cash into capital assets).