Negative Working Capital Can Be Good ... Sometimes
Some companies can generate cash so quickly they actually have a negativeworking capital . This is generally true of companies in the restaurant business (McDonald's had a negative working capital of $698.5 million between 1999 and 2000). Amazon.com is another example. This happens because customers pay upfront and so rapidly, the business has no problems raising cash. In these companies, products are delivered and sold to the customer before the company ever pays for them.
Don't understand how a company can have a negative working capital? Think back to our Warner Brothers / Wal-Mart example. When Wal-Mart ordered the 500,000 copies of a DVD, they were supposed to pay Warner Brothers within 30 days. What if by the sixth or seventh day, Wal-Mart had already put the DVDs on the shelves of its stores across the country? By the twentieth day, they may have sold all of the DVDs. In the end, Wal-Mart received the DVDs, shipped them to its stores, and sold them to the customer (making a profit in the process), all before they had paid Warner Brothers! If Wal-Mart can continue to do this with all of its suppliers, it doesn't really need to have enough cash on hand to pay all of its accounts payable. As long as the transactions are timed right, they can pay each bill as it comes due, maximizing their efficiency.
The bottom line: A negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis). In any other situation, it is a sign a company may be facing bankruptcy or serious financial trouble. You can tell if this is the case by comparing a company's accounts payable to the total inventory on the balance sheet.
Buying a Company for Free
If you can buy a company for the value of its working capital, you essentially pay nothing for the business. Going back to our Goodrich example; the company has $933 million in working capital. There are currently 101.9 million shares outstanding, which means each share of Goodrich stock has $9.16 cents worth of working capital. If GR's stock was trading for $9.16, you would basically be purchasing the stock for free (paying $1 for each $1 the company had in its checking account, inventory, etc.). You would pay nothing for the company's fixed assets (such as real estate, computers, & buildings) and earnings.
For the past ten or twenty years, it has been incredibly rare for a company to trade that low. You can still use the basic concept to your advantage; if you can find a business that is trading for working capital plus half the value of the fixed assets, you would be paying $0.50 for every $1.00 of assets.
http://beginnersinvest.about.com/od/analyzingabalancesheet/a/negative-working-capital.htm
Good article