Glossary · Valuation and finance
Net working capital
Also called working capital, NWC
Definition
Net working capital is a company's current assets (stock and money owed by customers) minus its current liabilities (money owed to suppliers). Deals usually agree a normal level of working capital, and the price is adjusted if the business has more or less than that at closing.
Related terms
Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing. Quality of earnings An accountant's report on how much of a company's profit is real, recurring and likely to last. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Escrow Money held back from the price by a third party, released later if no claims are made. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself.