Net Working Capital Peg Calculator
Model the net working capital target in an M&A transaction: monthly working capital, trailing and seasonal averages, and the dollar-for-dollar price adjustment at closing, with or without a collar.
How to use this calculator
- Enter twelve month-end balances for each line item, oldest month on the left, or paste them from a spreadsheet.
- Decide whether deferred revenue belongs in working capital or in net debt, and tick the box if it is debt-like.
- Pick the peg basis: the trailing twelve-month average is the usual starting point; a month-specific peg suits seasonal businesses.
- Enter the estimated working capital you expect to deliver at closing, and any collar or de minimis threshold in the LOI.
- Read the adjustment, check the month-by-month table for closing-date risk, and export the results as CSV.
Calculator
The grid opens with the hypothetical example discussed below. Overwrite it, paste your own figures, or clear it and start again.
Enter month-end balances in dollars, oldest month on the left, after the same normalizations used for adjusted EBITDA. Exclude cash, funded debt, income taxes and transaction accruals. The grid opens with the hypothetical example used below.
| Line item | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Accounts receivableCurrent asset (adds) | ||||||||||||
| InventoryCurrent asset (adds) | ||||||||||||
| Prepaid expensesCurrent asset (adds) | ||||||||||||
| Accounts payableCurrent liability (subtracts) | ||||||||||||
| Accrued liabilitiesCurrent liability (subtracts) | ||||||||||||
| Deferred revenueCurrent liability (subtracts) | ||||||||||||
| Net working capital | $5,200,000 | $5,000,000 | $4,800,000 | $4,600,000 | $4,700,000 | $4,900,000 | $5,100,000 | $5,400,000 | $5,600,000 | $5,300,000 | $5,000,000 | $4,400,000 |
- $5,000,000
- Trailing twelve-month average
- $5,133,333
- Six-month average
- $4,900,000
- Three-month average
- $1,200,000
- Seasonal range: Dec low to Sep high (24.0% of the TTM average)
Purchase price adjustment
- Peg (trailing twelve-month average)
- $5,000,000
- Estimated closing working capital
- $4,550,000
- Difference
- ($450,000)
- Adjustment to price
- ($450,000)
Closing working capital is short of the peg: the price falls by $450,000, dollar for dollar.
If the deal closed at each historical month-end
The adjustment against the selected peg, before any collar, if closing working capital equaled that month’s historical level. Large swings mean the closing date alone moves the price.
| Month-end | Net working capital | Versus peg |
|---|---|---|
| Jan | $5,200,000 | +$200,000 |
| Feb | $5,000,000 | $0 |
| Mar | $4,800,000 | ($200,000) |
| Apr | $4,600,000 | ($400,000) |
| May | $4,700,000 | ($300,000) |
| Jun | $4,900,000 | ($100,000) |
| Jul | $5,100,000 | +$100,000 |
| Aug | $5,400,000 | +$400,000 |
| Sep | $5,600,000 | +$600,000 |
| Oct | $5,300,000 | +$300,000 |
| Nov | $5,000,000 | $0 |
| Dec | $4,400,000 | ($600,000) |
Illustration only. This calculator is a simplified model for discussion and does not constitute accounting, legal, tax or investment advice. Working capital definitions, pegs and adjustment mechanics are set by each purchase agreement; rely on your own M&A counsel and accountants for any transaction.
What the working capital peg is
Most private company acquisitions are priced on a cash-free, debt-free basis with a normal level of working capital. The buyer pays for an operating business that comes with the receivables, inventory and prepaid expenses it needs, net of the payables and accruals that fund them. The peg, also called the working capital target, is the agreed normal level. At closing the seller delivers an estimate of actual net working capital; if it is above the peg the price rises, and if it is below the price falls, dollar for dollar. A final closing statement, usually 60 to 120 days later, trues up the estimate.
The mechanism stops either side from gaming the balance sheet. Without it, a seller could collect receivables early, run down inventory and stretch payables in the last months before closing, taking out cash the buyer has already paid for. With it, those actions simply reduce the price. The peg itself is therefore a price term, and a peg set $300,000 too high costs the seller exactly as much as a $300,000 cut to the headline price.
How buyers and sellers argue the peg
Seasonality and the closing date
A trailing twelve-month average captures a full seasonal cycle, which is why it is the usual starting point. It works well when working capital is steady. In a seasonal business it can move the price purely because of the closing date: closing in a month when working capital is naturally low produces a shortfall even though nothing abnormal happened, and closing at the seasonal peak produces a windfall. The remedies are a month-specific peg (a schedule of targets by closing month), a seasonal adjustment to the average, or a deliberate choice of closing date. The month-by-month table in the calculator shows how large the swing is.
Growth and the averaging period
A growing business needs more working capital each month, so its trailing twelve-month average sits below its current run rate. Buyers of fast-growing companies argue for a three- or six-month average, which raises the peg. Sellers argue for the full twelve months, or longer when the latest months were unusually high. Both positions can be legitimate. The calculator shows all three averages side by side so the difference can be priced before it is conceded.
Normalization
The monthly balances behind the peg should carry the same normalizations as the quality of earnings report: corrected cut-off errors, reserves trued up to their proper level, one-time items removed, and cash-basis entries converted to accrual. If EBITDA is adjusted for an item, its balance-sheet effect usually belongs in the working capital analysis too. The definition should attach a sample calculation as an exhibit and require the closing statement to use the same accounting principles, policies and judgments, so a buyer cannot add reserves after closing and recover them as a shortfall.
Excluded items and cash-free, debt-free
Cash is excluded because the seller keeps it or is paid for it separately. Funded debt, income tax balances and transaction-related accruals are excluded because they are settled in the debt bridge. The contested items sit at the border: deferred revenue, customer deposits, accrued bonuses and commissions, and aged payables. Each belongs in working capital or in net debt, never both and never neither. Moving an item from working capital to debt is not neutral: the full closing balance is deducted from the price, while the peg only falls by the item's historical average. The calculator's deferred revenue toggle shows that effect.
Worked example
The calculator opens with a hypothetical seasonal distributor whose month-end net working capital runs from a December low of $4.4 million to a September high of $5.6 million. The trailing twelve-month average, and therefore a flat peg, is $5.0 million. The seasonal range of $1.2 million equals 24% of the average. The company closes at the end of April, when estimated closing working capital is $4.55 million. These are the same figures as the worked example in our guide to moving from letter of intent to purchase agreement.
| Peg methodology | Peg | Closing NWC | Price adjustment |
|---|---|---|---|
| Flat trailing twelve-month average | $5,000,000 | $4,550,000 | ($450,000) |
| Month-specific peg for an April closing | $4,600,000 | $4,550,000 | ($50,000) |
| TTM peg with a $100,000 deductible collar | $5,000,000 | $4,550,000 | ($350,000) |
| TTM peg with a $100,000 tipping collar | $5,000,000 | $4,550,000 | ($450,000) |
| TTM peg, closing at the September high instead | $5,000,000 | $5,600,000 | +$600,000 |
| TTM peg, deferred revenue treated as debt | $5,385,833 | $4,900,000 | ($485,833), plus $350,000 deducted as debt |
Hypothetical company; not drawn from any actual transaction. In the last row the April deferred revenue balance of $350,000 is removed from closing working capital and deducted as debt, and the peg rises by the twelve-month average deferred revenue balance of $385,833, so the seller's total price reduction is $835,833 instead of $450,000.
Nothing in the business changed between those rows. The flat average cost the seller $450,000 because April is a seasonal low; a month-specific peg brought the adjustment down to $50,000. If the final closing statement 90 days later shows working capital of $4.62 million, the buyer pays a further $70,000 under the flat peg. The time to settle the methodology is in the letter of intent, while buyers are still competing.
Frequently asked questions
How is a net working capital peg usually calculated?
Most often as the average of month-end adjusted net working capital over the trailing twelve months, using the same normalizations as the quality of earnings report and excluding cash, funded debt, debt-like items, income tax balances and transaction accruals. Seasonal businesses may justify a month-specific peg so that the closing date alone does not move the price.
Is the working capital adjustment really dollar for dollar?
In most purchase agreements, yes: each dollar of closing working capital above the peg adds a dollar to the price and each dollar below subtracts one. Some agreements cap the upward adjustment, and some add a collar or de minimis threshold under which no adjustment is made. Read the definition in your LOI and purchase agreement rather than assuming.
What is the difference between a deductible and a tipping collar?
Both mean that differences inside the threshold are ignored. Once the threshold is exceeded, a deductible collar adjusts only the excess, while a tipping collar adjusts the full difference from the first dollar. On a $450,000 shortfall with a $100,000 threshold, the deductible version reduces the price by $350,000 and the tipping version by $450,000.
Should deferred revenue be in working capital or treated as debt?
It depends on the business and the negotiation. Buyers argue deferred revenue is cash collected for work they must perform after closing, so it should be deducted like debt, at least to the extent of the cost to deliver. Sellers argue it is a normal operating liability that recurs every month and already sits in the peg. It must be one or the other; counting it in both the peg and the debt bridge charges the seller twice.
Why use a shorter averaging period than twelve months?
A growing company's working capital rises with revenue, so a twelve-month average understates what the business needs at closing. Buyers of fast-growing companies therefore ask for a three- or six-month average. A shorter period also captures less of the seasonal cycle, so it is only appropriate if growth, not seasonality, is driving the difference.
Does the calculator store or send my numbers anywhere?
No. All calculations run in your browser, the paste function reads only what you paste into the box, and the CSV export is generated on your device. Nothing is sent to Laurent Capital or any other server.
Methodology and sources
Monthly net working capital is accounts receivable plus inventory plus prepaid expenses, less accounts payable, accrued liabilities and deferred revenue. When deferred revenue is marked as debt-like it is removed from every month and from nothing else. The trailing twelve-month average is the mean of all twelve month-ends; the six- and three-month averages are the means of the latest six and three month-ends (the rightmost columns). A month-specific peg equals the selected month’s historical balance. The seasonal range is the highest month less the lowest, also shown as a share of the twelve-month average.
The purchase price adjustment is estimated closing working capital less the peg. With a collar, a difference whose absolute value is at or below the threshold produces no adjustment; above it, the deductible option adjusts only the excess and the tipping option adjusts the full difference. Upward and downward adjustments are treated symmetrically and uncapped. The example dataset is hypothetical and was constructed to reproduce the monthly figures in our guide; a test script in the site’s source checks every figure on this page against the calculator’s code.
- 1Laurent Capital, From Letter of Intent to Purchase Agreement: The Terms That Decide Your Proceeds (guide). Source of the worked example: monthly NWC, $5.0 million TTM peg, $4.55 million April closing estimate and $4.62 million final statement
- 2Laurent Capital, Due Diligence and Quality of Earnings (guide). Normalization of monthly working capital and the working capital versus net debt boundary
- 3U.S. Securities and Exchange Commission, Regulation S-X Rule 5-02, Balance sheets (17 CFR 210.5-02), via eCFR. Standard balance-sheet captions for current assets (receivables, inventories, prepaid expenses) and current liabilities (accounts payable, other current liabilities) used for the line items
Data last updated October 26, 2026.
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Citation
Laurent Capital Research, “Net Working Capital Peg Calculator,” 2026, https://laurent.capital/tools/working-capital-peg-calculatorLink (HTML)
<a href="https://laurent.capital/tools/working-capital-peg-calculator">Net Working Capital Peg Calculator</a> (Laurent Capital)Negotiating a working capital peg?
Laurent Capital advises owners of lower middle market B2B companies on sale processes, including the peg methodology, debt definitions and closing statement. Conversations are confidential and carry no obligation.