working capital adjustment

working capital adjustment
USA
A post-closing adjustment of the purchase price to account for a true-up (as of the closing date of the acquisition) of the target company's estimated net working capital accounts (cash, accounts receivable, inventory and other current assets minus its current liabilities) after the closing of an acquisition. Parties generally negotiate and include the following in the acquisition agreement: what is included in the working capital of the target company (for example, the exclusion of prepaid expenses that will not benefit the buyer), how working capital is calculated and by whom, the timing of when the final calculations are determined and delivered to the other party, how any disagreements are resolved and process and timing for payment of any adjustments. If the final working capital is less than the estimated working capital, the purchase price is adjusted down and the seller pays the difference to the buyer. If the final working capital is greater than the estimated working capital, the purchase price is adjusted up and the buyer pays the difference to the seller.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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