Free tool
Working Capital Peg Calculator
The working capital peg is the level of net working capital a buyer expects the business to be handed over with. It is usually the average of recent month-end figures. Enter up to twelve months to set the peg, add the completion figure if you have it, and the calculator shows the price adjustment. Nothing you type is stored.
Monthly net working capital
Trade debtors + stock + prepayments − trade creditors − accruals, at each month end. Enter as many months as you have; blank months are left out of the average.
Optional. The completion accounts figure, to see the true-up.
Enter at least one month to see the peg.
The formula
Working capital peg = the average of monthly net working capital over an agreed period, often the last twelve months. Net working capital is trade debtors plus stock plus prepayments, less trade creditors and accruals. At completion, the price is adjusted by the completion figure less the peg: above the peg the buyer pays more, below it the price falls.
An average is used because working capital moves through the year. A business that builds stock before a busy season would look very different at the peak and the trough, and a peg set on one month end would hand one side a windfall. For the full background, read the working capital peg guide.
What usually goes in, and what stays out
Usually included
- Trade debtors, net of a bad-debt provision
- Stock and work in progress
- Prepayments
- Trade creditors
- Accruals and other operating creditors
Usually excluded (often treated as debt or cash instead)
- Cash and overdrafts
- Bank loans and shareholder loans
- Corporation tax liabilities
- Deferred consideration from past acquisitions
- Deferred revenue — negotiated deal by deal, so agree it explicitly
Where disputes start
The arithmetic is simple; the definitions are not. Most completion disputes come from a balance that one side counts as working capital and the other as debt, or from accounting policies that change between the peg period and the completion accounts. Agree a worked example of the calculation in the purchase agreement, using the same policies for both. See locked box vs completion accounts for when a true-up is used at all.
Inside TrueValue, working capital is projected as a share of revenue in the deal model, so a growing business absorbing cash shows up in debt cover and returns rather than being hidden — see M&A valuation software.
Frequently asked questions
How many months should the peg use?
- Twelve is common because it covers a full seasonal cycle. Fewer months can be fair in a business with no seasonality or one that has changed shape recently, but both sides should agree the period before the figures are run.
Does a higher peg favour the buyer or the seller?
- A higher peg favours the buyer: the seller must hand over more working capital to avoid a price reduction. A lower peg favours the seller.
Is the adjustment pound for pound?
- Usually, yes, though some agreements apply a small tolerance band (a "collar") inside which no adjustment is made. This calculator shows the full difference.
Is this a valuation?
- No. It shows one completion adjustment. For a valuation of the business, run Value My Deal.