LBO Test Stub Year NWC
Hi!
For LBO modelling: if there is only a stub year BS given (e.g. 30-Jun-2021), and closing date is 30-Jun-2021 - how would one project the NWC for the closing BS 2021 (31-Dec-2021)?
- Would you simply set NWC components equal to stub year BS, thereby having Change NWC = 0? (which does not make sense to me for calculating cash flow for debt paydown in the stub etc)?
- Would you calculate NWC for the closing BS 31-Dec based on DSO, DIO etc. of stub BS?
Thank you!!
PUSH
Option B but if you did option A I don’t think people would hold it against you too hard on a timed test
Thank you.
To further clarify: You would calculate stub BS data (of 30-Jun21), based on the sales / COGS of this period (lower than full year) or based on LTM figures?
And Change in WC would then be change between WC on stub BS (dated 31-Dec-21) and stub year BS given (30-Jun-21)?
Assuming you have a 12/31/2020 balance sheet, take NWC drivers (DSO, DIO, etc) as of 12/31/2020 and apply them to 12/31/2021 sales, COGS, etc. to get NWC at 12/31/21. This is a better option than applying 6/30/21 drivers as they can be impacted by seasonality.
Then calc the change in NWC from 6/30/21 to 12/31/21 since you now have NWC balances for each period.
Above is ideal, but only if you have that info. Otherwise, option B is fine I would think (yes, to your clarifying comment). Depending on the test, can add a comment in your write up or in the excel that says you need to diligence seasonality as this may impact stub FCF
Well, to be fair, any discrete point in time, including 12/31 can be impacted by seasonality...
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