Net Working Capital

Net working capital (NWC) is the difference between a company's current assets (such as inventories and receivables) and its current liabilities. It represents the operating capital a company needs to run its day-to-day business and is a central component of the purchase price mechanics in corporate transactions.

In a transaction on a cash & debt free basis, a normalised target working capital (target NWC) is usually agreed. If the actual NWC at the reference date deviates from this target, a purchase price adjustment is made upwards or downwards. This prevents the seller from artificially reducing working capital before completion.

Determining a reliable reference value requires a detailed analysis of seasonal fluctuations and one-off effects. In our due diligence and transaction structuring, we define net working capital so precisely that it does not become a point of dispute afterwards.