Hello guys, Can someone explain me in detail how categorizing something as NWC instead of Debt-like item changes Equity value. The line item would be "deferred revenues" lets assume EV = 100 and Deferred Revenues = 10
Thanks for your help
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reiter13, hey, look at the bright side, at least you didn't get a ton of monkey shit thrown at you...here is my best guess on threads that might be helpful:
More suggestions...
I hope those threads give you a bit more insight.
I have another question regarding that topic, as I was not able to find it anywhere else:
What if you were to wake up one day and suddenly decide to classify a proportion of Deferred Revenues, lets say 20m out of 100m total, as debt-like item - but everything else stays the same as before e.g. Target NWC
Given that your Target NWC stays the same, the effect of classifying a proportion of Deferred Revenues as debt-like item, will not change the ending Equity Value of the company - correct?
Thank you
It simply depends if it was already factored into the target. If that NWC target was set inclusive of the Def Rev (say NWC target was $100, including Def Rev of $10) and the purchase agreement definition reads that Def Rev is debt (or debt-like), you are effectively having to deliver against $110 instead of $100 b/c you have removed a current liability and decreased the denominator.
Note: this is the same effect as the scenario below, just through a different mechanism. Either way, the effective purchase price is being reduced by $10.
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