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MCM Capital Educational Video Series - What Is Working Capital and Why Is It So Important?

What Is Working Capital and Why Is It So Important?

What is working capital and why is it so heavily negotiated in M&A transactions? Justin Thomas from Cohen & Company joined us for a deep dive into working capital to discuss how it is calculated and how it impacts the sale of businesses.

See below for discussion topics.

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Discussion topics include:

  • Working capital definition 1:03
  • How does working capital affect purchase price? 2:57
  • How does the market most commonly calculate working capital requirements? 6:12
  • Is working capital affected by a business’s seasonality? 7:40
  • Example working capital calculation illustrating when it would positively or negatively impact purchase price 9:19
  • What is a working capital collar? 12:23
  • What items are most commonly miscategorized as working capital? 13:46
  • What is the goal of a working capital adjustment? 15:18
  • What is the most common reason for working capital adjustments? 17:18
  • How is deferred revenue viewed from a working capital perspective? 18:56