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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
Theta
Theta measures the rate at which an option loses value as time passes, assuming other factors remain constant. It reflects time decay, which accelerates as the option nears expiry. For option buyers, theta works as a cost over time, while for option sellers, it can be a favourable component of returns.
Tracking Error
Tracking error measures how closely a portfolio or fund follows the performance of its benchmark index. It represents the volatility of the difference between fund returns and benchmark returns. A lower tracking error indicates closer alignment, while a higher tracking error suggests greater deviation due to costs, strategy, or holdings.
Support Level
The support level refers to a specific price point where traders or investors consistently find buying interest in a stock or asset. This prevents the price from falling further. It works like a base that holds the price up. However, if the price breaks the support and drops below this level, it may indicate weakness in the stock. On the other hand, bouncing off the support level points to a potential buying opportunity.
Basis Of Allotment
The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
- Share allocation ratio
- Bids
- Demand
- Final price
The basis of allotment can vary based on the type of investor in question. Bidders during an IPO for whom a different basis of allotment applies include:
- Retail Individual Investors (RII)
- Qualified Institutional Buyer (QIB)
- Non-Institutional Buyers (NIBs)
- High Net-worth Individuals (HNIs)
- Anchor Investors
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements on a scale of 0-100. Readings above 70 signal overbought conditions, suggesting potential reversals, while below 30 indicates oversold levels. Traders use 14-period RSI to identify entry/exit points and confirm trends in stocks or indices.
Micro Cap Stocks
Micro Cap Stocks are shares of very small companies with a relatively low market capitalisation, typically below ₹500 crore. These stocks can offer high growth potential but also come with higher risk, lower liquidity, and greater price volatility compared to larger, well-established companies.
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