Working Capital is the different between Current Assets and Current Liabilities. Currents Assets include Cash & equivalents, Inventories, and Account Receivables, while Current Liabilities includes Bank Loan, Account Payables, and other Finance Leases.
Positive Working Capital is current assets is more than current liabilities.
Neutral Working Capital is current assets is equal to current liabilities.
Negative Working Capital is current assets is less than current liabilities.
Which is the best option in selecting a company to invest?
I personally prefer a company with Positive Working Capital. As this can prevent the company goes bankrupt. However, there must always be a through out study and analyzing about the company's financial reports and its future prospect. E.g. When a company has a high account receivables is not always be a good sign. A higher account receivables means the company is having a longer credit terms to her customers, and while a lower account payables mean the company is not able to have a longer credit terms from her suppliers. And this may indicates the company is not able to make use of supplier's credit terms to benefit in growing its business in the longer term - the company might need more financing facilities along with the growing of its business.
Higher inventories does not always mean positive as well. The movement of inventories has to be analyzed by an investor. In other words, the investor has to really study a complete situation of a financial report and some qualitative aspects in analyzing the company, including positive, neutral, or negative working capital.
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