The formulas, tricks and trade secrets of Private Equity
Change in Working Capital Valuation
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:
The earnings or cash flow figures may be influenced by changes in working capital (delta) across periods
The net debt (specifically cash) position may be affected by the operational working capital requirements of the business
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