Net working capital (NWC) is a business's current assets (cash, receivables, inventory) minus its current liabilities (payables, accrued expenses). In an acquisition it represents the operating cushion a buyer needs to run the business without injecting extra cash on day one.
Worked example
| Line | Amount |
|---|---|
| Current assets (AR + inventory + cash) | $180,000 |
| Less: current liabilities (AP + accruals) | −$95,000 |
| Net working capital | $85,000 |
| Agreed target (peg) | $85,000 |
| Actually delivered | $70,000 |
| Purchase-price adjustment | −$15,000 |
If the seller delivers below the agreed peg, the price is reduced dollar-for-dollar to make the buyer whole.
Why it matters when buying a business
NWC is one of the most-missed line items in a deal. Buyers negotiate a working-capital peg so the business arrives with enough cash to make payroll and pay suppliers without a surprise capital call. Confirm the number during due diligence, a low or manipulated NWC can quietly cost you five figures after closing.
