I learned that "NWC = Inventories + receivables - payables". Everyone is stating that SaaS companies do have negative NWC, due to the deferred revenue.
However, since when is deferred revenue part of NWC? Or is this due to payables?
| +43 | What are you actually using AI for in PE? | 16 | 5h |
| +33 | Best industry/job for entrepreneurship? | 11 | 3d |
| +27 | Firm not transferring me to NYC | 13 | 4h |
| +24 | Laid off from MM PE - Seeking Help | 9 | 5h |
| +20 | Burn Out in PE - What Comes Next? | 3 | 4d |
| +15 | Buyside in London with nice WLB and pay | 15 | 1d |
| +12 | Value Creation Initiatives (That aren't add-ons) | 3 | 3d |
| +10 | Undergrad summer PE analyst positions | 3 | 5d |
| +9 | Realistic path to Capital Solutions/Spec Sits Groups from LevFin at a BB? | 1 | 5h |
| +9 | Question about HH 2028 | 2 | 4d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
NWC= CA - CL. Deferred revenue would be part of current liabilities and would result in some cases in negative NWC because the company received the money but have not performed the service.
I think that what’s key here as well is that the deferred revenue in this case will have to result in outflows in less than one year , and therefore be in current liabilities instead of long term liabilities. I am imagining this is a scenario where a software company collects the cash at the beginning of a 6 month subscription (e.g in this example the customer pays upfront for 6 month subscription), acknowledges DR, and then the customer gets the software during the 6 months. NWC goes down at the beginning, and then , and someone correct me if wrong here , goes up when the liability goes down and retained earnings (?) go up after the 6 months ?
This is why you have ST DR and LT DR
Fugiat amet ipsam quam dolor quo. Ab delectus repellendus laborum. Expedita similique numquam et sunt error expedita. Quis esse natus harum quo. Voluptas tempora quaerat aperiam. Vero itaque facilis et itaque possimus in non illum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...