The formulas, tricks and trade secrets of Private Equity

Change in Working Capital Valuation

Sample Chapter

There are various methods used to value investees, but private equiteers tend to focus on earnings multiple valuations and discounted cash flow (DCF) valuations. Working capital affects these valuation methodologies in the following two ways:

  1. The earnings or cash flow figures may be influenced by changes in working capital (delta) across periods
  2. The net debt (specifically cash) position may be affected by the operational working capital requirements of the business
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