In acquisitions, a "normal" level of working capital (the target) expected to be delivered at closing is agreed; the difference between the actual amount at closing and the target is reflected in the purchase price. Seasonality and the cash conversion cycle are important in setting this target.
Related terms
Net debtFinancial debt and similar liabilities less cash and cash equivalents.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Statement of cash flowsThe statement showing an entity's cash inflows and outflows for a period, classified into operating, investing and financing activities.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.Earn-outA mechanism under which part of the purchase price is paid depending on the target company reaching certain performance targets after closing.
Last updated: October 22, 2026 · This definition is for general information only.