Net Working Capital (NWC)
Current Assets − Current LiabilitiesNWC measures the short-term liquidity of the business. It represents the difference between what the business owns in the near term and what it owes in the near term.
How it's used in a deal
A typical acquisition includes a normalized level of working capital. Deviations from this level may result in purchase price adjustments at closing.
Worked example
Precision Auto Service's 12/31/2024 balance sheet:
Net Working Capital = $260,000
Numbers from our sample deal report — an anonymized real-world analysis.
Important caveat
Negative NWC may indicate liquidity concerns. However, some business models (e.g., subscription) naturally operate with negative NWC.
Frequently asked questions
What is a working capital peg?
A negotiated 'normal' level of working capital the seller must deliver at closing. If the business closes with less, the price adjusts down; with more, up. Without a peg, a seller can quietly drain receivables and inventory before handing you the keys.
Is negative working capital always bad?
No — businesses that collect cash up front (subscriptions, deposits) run negative NWC by design. It's a red flag when a business that should carry receivables and inventory shows negative NWC, which can signal stretched payables or a liquidity crunch.
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Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.