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?
| +60 | Take the Layoff or Quit? | 19 | 12h |
| +39 | Fund going shit but happy with life what to do? | 10 | 10h |
| +34 | PE PortCo Work | 18 | 4d |
| +24 | Rugpulled on Sr. ASO promote - how to fill a year (or two) before B school? | 7 | 4d |
| +24 | PE downturn- Impact on a PortCo CFO / Operating Partner | 4 | 4h |
| +23 | First year PE analyst on medical leave after insane hours | 3 | 2h |
| +19 | Career in PCA: GP-Led or LP-Led? | 5 | 2h |
| +17 | Practical uses of of AI in PE | 2 | 14h |
| +14 | PE on cycle guide | 2 | 2d |
| +14 | Case Study - HELP! | 4 | 3d |
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
Animi natus iusto est est. Qui ipsam amet alias eos. Vel dignissimos est soluta aut natus voluptas.
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...