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Finance GlossaryNegative Working Capital
Negative Working Capital
Definition of Negative Working Capital
Negative Working Capital refers to a situation where a company’s short-term assets are lower than its short-term liabilities. This implies the business is using supplier credit or advance payments to run its operations. Although it may suggest cash pressure, in certain business models, it can reflect operational efficiency.
Related Terms
Mark-to-Market (MTM)
Mark-to-market is the practice of valuing an asset or position at its current market price rather than its purchase price. For instance, a futures contract is marked to market daily, meaning profits or losses are adjusted each day based on the latest market price.
Convertible Arbitrage
A convertible arbitrage is a trading strategy that involves buying convertible securities - most commonly bonds and preferred stock - and a short option on the common stock of the same company.
Because of this combination of purchases, a convertible arbitrage strategy is known as a neutral strategy designed to profit from the supposed inefficiencies that lie in the pricing of convertible securities.
Because of this combination of purchases, a convertible arbitrage strategy is known as a neutral strategy designed to profit from the supposed inefficiencies that lie in the pricing of convertible securities.
Warrant
A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy a company’s shares at a predetermined price before a specific expiry date. For example, investors may receive warrants during fundraising rounds, benefiting if the company’s share price rises above the exercise price.
Yield to Maturity (YTM)
Yield to Maturity is the total return an investor can expect if a bond is held until maturity, accounting for interest payments and any gain or loss if purchased at a discount or premium. For example, buying a bond below face value increases its YTM beyond the coupon rate.
Advance Payment Guarantee/Bond
An Advance Payment Guarantee or Advance Payment Guarantee Bond is a contract issued by a third party willing to take responsibility for fulling the terms of an agreement or payments owed by one party to another.
The guarantee could be:
The guarantee could be:
- Primary: Indemnity (fulling payments)
- Secondary: Guarantee (assuring that the outcome will be met)
Capture Ratio
The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
- Up market capture ratio
-
Down market capture ratio
Here’s how to calculate the up market capture ratio:
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
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