Well Capitalized

What Is Working Capital and Why Is It So Important?

What is working capital and why is it so heavily negotiated in M&A transactions? Justin Thomas from Cohen & Company joined us for a deep dive into working capital to discuss how it is calculated and how it impacts the sale of businesses.

See below for discussion topics.

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Discussion topics include:

  • Working capital definition 1:03
  • How does working capital affect purchase price? 2:57
  • How does the market most commonly calculate working capital requirements? 6:12
  • Is working capital affected by a business’s seasonality? 7:40
  • Example working capital calculation illustrating when it would positively or negatively impact purchase price 9:19
  • What is a working capital collar? 12:23
  • What items are most commonly miscategorized as working capital? 13:46
  • What is the goal of a working capital adjustment? 15:18
  • What is the most common reason for working capital adjustments? 17:18
  • How is deferred revenue viewed from a working capital perspective? 18:56