How to view working capital in an investment?
Just curious, how do private equity investors think about how working capital is set up in a business? Could you guys help me think about a company being heavy / light on working capital or having positive vs. negative working capital? I know that having negative working capital means that the company will generate more cash as it grows but be in a tough cash situation if the business starts declining, while a positive working capital company will eat into cash as it grows but generate cash in a downturn as the working capital unwinds. But what do investors typically like to see in working capital? It's never been laid out super clearly for me, so I'd really appreciate if anyone could clarify. Thanks!
Bump
Not sure if this will be useful : in Lev Fin, we usually see sponsors pay attention to seasonality/swings in working cap. Currently on an infra deal where monthly WC development over the past 3 HYs was discussed in detail in our FDD.
This info is pretty relevant for us since as a bank, we have a stake in the RCF facility (usually used to finance WC fluctuations).
Then the more obvious points : abnormal increase or decrease in payables/receivables/inventory etc.
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