Net Working Capital Adjustment

A target level of net working capital agreed between buyer and seller in an acquisition, used as the basis for post-closing purchase price adjustments. The working capital peg ensures the buyer receives a business with a normalised level of operating liquidity, with adjustments made if actual working capital at closing is above or below the agreed amount.

The agreed level of working capital that the target business should have at the completion of an M&A transaction, established during negotiations and used as a benchmark for purchase price adjustments under a completion accounts mechanism. The target is typically set at the average net working capital over a 12-month trailing period, normalised for seasonality and non-recurring items.

The amount by which a company's net working capital exceeds the level required to sustain its normal business operations. In M&A transactions, excess working capital increases enterprise value (and therefore equity value) because it represents surplus cash or near-cash resources available to the buyer beyond what is needed to run the business.

A mechanism used in M&A transactions where the final purchase price is adjusted after closing based on the target company's actual financial position — typically net assets, working capital, debt, and cash — as at the completion date. Completion accounts are prepared post-closing and compared against agreed targets, with adjustments settling the difference between estimated and actual values.

The difference between current assets and current liabilities, representing the short-term liquidity available to fund day-to-day operations. Effective working capital management ensures a business can meet its obligations while optimising cash flow for growth investment.

The process of modifying an observed equity beta to better reflect the risk characteristics of the subject company being valued. Common adjustments include unlevering betas from comparable public companies to remove the effect of different capital structures, relevering to the subject company's target capital structure, and applying the Blume or Vasicek adjustment to account for beta's tendency to regress toward 1.0 over time.

A measure of how effectively a company allocates capital to generate returns, calculated as net operating profit after tax divided by invested capital. ROIC above the cost of capital indicates value creation; below it signals value destruction.

An adjustment applied to the standard WACC to reflect the additional risk associated with specific intangible assets or early-stage businesses. Intangible-heavy investments typically warrant a higher discount rate than the firm-level WACC because their cash flows are less certain and more sensitive to competitive and technological disruption.