Net Working Capital (NWC / WCR)
Net Working Capital (NWC), also called Working Capital Requirement (WCR) — the normalised working capital a target needs to operate, and a direct lever on the M&A purchase price.
Also known as: NWC, WCR, Working Capital, Working Capital Requirement
One-line definition
Net Working Capital (NWC) = Current operating assets − current operating liabilities, excluding anything already captured in Net Debt.
Why TS cares
Buyers require the business to be sold with a normal level of working capital — enough to run day-to-day operations. The TS team builds a reference NWC (usually a twelve-month average), and the closing statement compares actual NWC to this reference. Any shortfall adjusts the final price.
Typical build
- In: trade receivables, inventories, prepayments.
- Out: trade payables, accruals, customer deposits.
- Exclude: cash, debt, tax balances, intercompany — those live in Net Debt.
Watch-outs
- Seasonality distorts monthly averages — use a full year or weighted month-end average.
- One-offs (e.g., a large stock build before a product launch) should be normalised out.
- Classification — make sure an item doesn't get double-counted in both NWC and Net Debt.