Set a working-capital peg without hiding seasonality

Net Working Capital's peg is a defined NWC target for the price mechanism. I would start with the contractual definition and the functioning of the activity. The items retained, accounting methods, exclusions and dates change the result. A historical average can inform the discussion, but it does not become a neutral rule simply because it covers twelve months.

The economic issue is to specify the level of operational financing that the parties consider to be delivered with the company. A target that is too low can benefit one party, a target that is too high the other. Due diligence prepares comparable data and explains the factors, but the parties negotiate the agreement. We must maintain this distinction so as not to present a compromise as an accounting truth.

I would establish a table by item: receivables, merchandise inventories, suppliers and other operational assets or liabilities, depending on the definition used. Accounting value adjustments or provisions for charges, accrued liabilities, taxes and deferred revenue require specific discussion. An accounting title is not enough to determine their treatment. You must understand the nature, timetable and mechanism of the SPA, then apply the same convention to the peg and closing.

The major risk is to treat the same item differently between history and closing, or to count it both in debt-like and in NWC. I would bring populations together with equity value bridge. The methods for valuing stocks of goods and receivables must also be consistent: a change in accounting value adjustment or provision for charges can modify the apparent NWC without changing the volume of activity.

I would construct a monthly series reconciled with activity data. Seasonality can explain peaks in merchandise stocks or temporary receivables. Growth can make a historical average insufficient to represent the recent level. Customer and supplier lead times must be examined with comparable populations; aggregate ratios can mask mix changes.

I would also look for practices close to closing: acceleration of recovery, deferral of payments or reduction of merchandise stocks. These movements are not automatically abusive, but they can modify the level delivered. It is necessary to understand their normal nature and the applicable provisions. Financed receivables or suppliers organized in a financing program call for a substance and contract analysis.

The average history is 2 M€, but the parties agree on a seasonal target of 2,4 M€. The closing NWC, calculated using the same definition, is 2,1 M€. In a mechanism where the deficit is deducted euro for euro, the adjustment is less 300 k€. You must write down this sign convention and check any limits or contractual rules.

With a target of 2 M€, the same closing would produce more 100 k€. The 400 k€ discrepancy between these readings comes from the target, not a subtraction error. I would present the data and reasons supporting each option: season, level of activity and periods chosen. The example does not demonstrate that 2,4 M€ is always the correct target; it shows the importance of the negotiated agreement.

Another calculation using a different definition of receivables or accrued liabilities would not be comparable. Before discussing the level, it is therefore necessary to align the positions. This discipline avoids a negotiation where two NWC tables seem to contradict the same accounts even though they measure different perimeters.

I would present several justified views rather than a single amount without context: average, comparable months and recent level, with necessary adjustments. Each variation must use constant conventions. Sensitivities help the buyer understand the consequences and risks, without pretending that a statistical average dictates the price.

The closing procedure must be practicable: sources, timetable, access to supporting documents and professional review rules. A precise definition but impossible to calculate in the systems can create a dispute. Boards should review contractual arrangements; the financial team can test their application on a historical balance sheet before signing.

A tool can normalize exports, reconstruct series and offer variations to examine. I would test classification changes, accounting value adjustments or expense provisions and financing programs. A digital series without a preserved definition cannot be revised. The calculations must remain accessible and the sources identifiable.

In a Solenor workflow, I would look for links between data, conventions and open questions. The value is to reduce repetitive work and make the challenge easier. The NWC target remains a choice based on the economics of activity and negotiation, not an automatic exit from the model.