hard · Private Equity & LBOs
A buyer's Quality of Earnings (QoE) report identifies that the target's Accounts Payable has increased by $15 million over the last 6 months simply because they stopped paying vendors on time.
How should the analyst treat this in the NWC peg calculation?
- Treat the $15 million as a debt-like item in the bridge.
- Accept the 15 million increase as it represents the 'new normal' for the business's liquidity.
- Subtract 15 million from the historical AP (or add it to NWC) to 'normalize' the working capital requirement.
- Ignore it, as Accounts Payable is always an operating liability.
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