Negative working capital as % of sales modelling - please advise!
Hey all!
I got negative working capital as % of sales, can I use it as a forecast % of revenue? I am wondering because on average (as I understand), the higher sales the higher working capital, but if we multiple it by negative % of sales then the higher sales, the lower working capital. Is it okay? It's needed for DCF.
It's TMT sector and I see every analysed company has negative WC .
Regards!
Perfectly fine. Probably clients pay in advance, so if they grow, more clients start paying in advance making W/C more negative.
Rover-S how would the SPA be drafted for a company with a negative working capital? How can you determine what level of min working capital is required to operate the company when the WC is negative? Assuming like you said the company you’re about to acquire is a tech biz and has frequently had negative WC balances
If it’s more negative than on average, a debt-like item is created which lowers equity value
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