Working capital adjustment and enterprise value
Technical question relating to valuation and target/normalised WC.
Lets say we establish that the target or average working capital required by a business is $20m. When we buy the business it only has $10m working capital. Does this $10m difference go to enterprise value?
Hopefully the worked example below clarifies
equity value agreed $100m
Net Debt $10m
WC adjustment $10m
Enterprise Value $120
Is this the correct way to look at it or would you usually view the WC adjustment as separate? i,.e. in the above example EV would be $110 instead of $120?
Thanks.
I would say EV is $110 in the above example
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