Working capital adjustment

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March 01, 2022

by a searcher from University of Virginia-Darden - Darden School of Business in Austin, TX, USA

Working on a deal right now that has some decent size inventory on hand and need to work through a working capital adjustment. Does someone have a model they would be willing to share? My hope is the owner and I can work through this really easily.

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Reply by a searcher
from Northwestern University in New York, NY, USA
Modeling working capital shouldn’t be an issue. There are plenty of resources out there to compute days, turns, % of whatever… Understanding how capital flows through the business, what is and isn’t working capital and overall ebbs and flows throughout a year/cycle are critical questions that a buyer needs to have good answers to. I always find it useful to imagine myself on day 1 of ownership and think about what cash in and outflows you’re facing in one week, one month, one quarter, etc.
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Reply by a searcher
from University of Pennsylvania in Seattle, WA, USA
Lots of ways to slice it but above is a quick and dirty calculation. It works best when there are not huge variances from year to year. I am working on a deal right now with much higher inventories of a specific item and instead of averaging the past year, I am looking at a 5 year average of days inventory and applying to current balance sheet. Like most things it is a negotiation. Good luck!
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