Set the working capital peg and see the closing true-up
Enter month-end receivables, inventory, prepaids, payables and accruals. See the normalized NWC target under three common methods, how seasonal the business is, and what the purchase price adjustment looks like at your closing estimate.
Cash and debt are excluded by design. On a cash-free, debt-free deal they are settled separately, so do not enter cash, borrowings, the current portion of debt or income tax balances here.
- NWC swings $2.83M (38% of the peg) across the year. The closing date alone can move the adjustment by that much; consider a month-specific or seasonally adjusted peg.
- The last 6 months average above the TTM by 12%. Check whether that is a trend (growth, terms changes) or timing.
- Choice of method moves the peg by $848.33K. TTM average favours the seller; Last 6 months average favours the buyer.
Monthly net working capital
Solid line: the peg. Dashed line: estimated closing NWC.
How the peg method changes the deal
A lower peg means the seller delivers less working capital for the same price; a higher peg protects the buyer.
| Method | Peg | Adjustment at closing estimate | Favours |
|---|---|---|---|
| TTM average (selected) | $7.35M | Buyer pays $98.33K more | Seller (lowest peg) |
| Last 6 months average | $8.2M | Price reduced $450K | Buyer (highest peg) |
| TTM median | $7.4M | Buyer pays $55K more | Between |
Acquifolio stores monthly balances, the agreed peg and the closing true-up next to the evidence that supports them.
The adjustment is dollar for dollar against the peg. Real purchase agreements also define accounting principles, excluded items and dispute mechanics that can change the result. Not investment, tax or legal advice. Everything runs in your browser and nothing you enter is stored or sent.
How it works
Net working capital each month is receivables + inventory + prepaid & other − payables − accrued liabilities. Cash, debt and income taxes are excluded because a cash-free, debt-free price deals with them separately.
Peg methods: the average of the trailing 12 months (TTM), the average of the last 6 months, or the median of the trailing 12 months. If fewer than 12 months are entered, all of them are used.
Purchase price adjustment: closing NWC − peg, dollar for dollar. A positive number is paid to the seller; a negative number reduces the price. With a collar, nothing changes while the difference is within ±collar; beyond it, either only the excess or the full amount is adjusted, depending on your choice.
Questions
What is a working capital peg?+
It is the level of net working capital the buyer expects to receive at closing, agreed in the purchase agreement. If actual closing working capital is above the peg, the buyer pays the difference; if it is below, the price is reduced. It stops a seller from collecting receivables or stretching payables just before close.
Should the peg be a 12-month average or something else?+
A trailing 12-month average is the most common starting point because it covers a full seasonal cycle. A shorter average can be justified for a fast-growing business, and the median reduces the effect of one unusual month. The best method for each side depends on where closing working capital is expected to land, which is why the tool shows all three.
What is a collar or basket on the working capital adjustment?+
A collar is a band around the peg within which no adjustment is made, so the parties do not argue over small differences. Some agreements then adjust only the amount beyond the collar; others adjust the full difference once the collar is exceeded. The second is more valuable to whichever side ends up outside the band.
How does seasonality affect the peg?+
In a seasonal business, working capital at closing depends heavily on the closing month. If closing falls at a seasonal peak, the seller can receive a large payment against a 12-month average peg. Parties sometimes agree a month-specific peg or adjust the target to the expected closing month.
From headline enterprise value to the cash the seller actually receives: net debt, debt-like items, NWC true-up.
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