February 10, 2026
Working-Capital

…As firms accumulate N2.90trn in negative working capital

Nigerian firms are carrying huge negative working capital in their books, raising concerns about the soundness of their financial position.

For instance, non-financial firms have a combined negative working capital to a tune of N2.90 trillion in the first six months of 2025, according to data gathered by MoneyCentral.

Negative working capital can make a balance sheet look stronger than it really is.

When revenues are growing, this is a big advantage. Cash pours into the business which can be used to fund investments.

However, the effect is reversed when sales suddenly slow down or fall. Suppliers still need to be paid but there’s little new customer cash coming in.

It is worth noting that most firms often go bankrupt because their cash runs dry, thereby making it difficult to meet short term obligations to suppliers and sundry creditors profitable companies do run out of cash.

Perhaps more worrisome is that nearly all companies are not capable of wiping out their debts with working capital. Of course, most recorded negative working capital ratio, which means their current liabilities exceed current assets.

Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. It is the difference between current assets and current liabilities.

The working capital ratio is calculated by dividing current assets by current liabilities. This figure is useful in assessing a company’s liquidity and operational efficiency. A working capital ratio below one suggests that a company may be unable to pay its short-term debts.

“When a company is in a sound position the current assets well exceed the current liabilities, indicating that the company will have no difficulty in taking care of its current debts as they mature,” said legendary American investor and father of value investing Benjamin Graham.

Graham said a firm’s current assets must be twice its current liabilities to be a good pick.

Oando Energy Plc incurred negative working capital of N3.17 trillion; Dangote Cement, (-N702.49 billion); Dangote Sugar, (-N430.32); Guinness Nigeria, (N114 billion); Nigerian Breweries, (-N106.37 billion); Nestle Nigeria, (-N39.43 billion); (35.01 billion); Cadbury Nigeria, (-N19.48 billion); Transcorp Hotels, (-N16.59 billion); Total Energies, (-N5.67 billion).

Those who buck the trend with positive working capital that indicates stable liquidity which makes them impervious to bankruptcy are: Julius Berger with a positive working capital of + (N403.97 billion); Seplat Energy, (+N291.63 billion); Aradel; (+N203.55 billion), and International Breweries, (+N206.18 billion).

 

Analysts at J.P Morgan suggests firms should increase their working capital by paying workers, suppliers and other expenses on time; increase cash on hand by accelerating collections of debts, and better position their business to take advantage of growth opportunities, such as investing in new projects, expanding into new markets or upgrading operations and recovering faster from market disruptions.

A solid working capital makes a firm attractive to investors.

337 thoughts on “Balance sheet strength erodes

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