Working Capital / Net Working Capital (NWC)

Net working capital refers to a company’s operating net current assets. It typically comprises inventories and trade receivables less short-term, non-interest-bearing operating liabilities. It thus reflects the short-term financing requirement of the operating business and is a central control variable for liquidity and cash conversion.

In M&A transactions, a ‘normal’ working capital level is regularly agreed as a reference value (‘target NWC’). Deviations from this have a purchase-price-increasing or purchase-price-reducing effect within the equity bridge. The specific definition of net working capital, the treatment of seasonality, the calculation on the basis of average values and the delineation from ‘debt-like items’ are therefore regularly the subject of intensive negotiation. Detailed information can be found, for example, here.