Definition
Working Capital
Current assets minus current liabilities — the operating capital tied up in a business.
In an M&A context, working capital is negotiated via a target (the 'peg') and a true-up post-close. The peg is usually the trailing twelve-month average of normalised working capital. Sellers want the peg low so they keep more cash at close; buyers want it high so they inherit a fully funded business. Working-capital mechanics are one of the most fertile areas of post-close dispute.
See also
Read further in The Guide
The Working Capital Mechanism at Close
How the working capital peg, target, and true-up actually work — and why most disputes after close are about its definition, not its arithmetic.
Working Capital Normalisation in Valuation
Understanding working capital normalisation in M&A valuation, including methodologies for establishing a target working capital peg and managing complex current asset/liability considerations.