A defensible working capital peg — the number sellers and acquirers negotiate against.
Working capital negotiation is where institutional deals are repriced. Observed across institutional deal flow, a material share of post-LOI value movement — often 35–55% — traces to working capital negotiations sellers were unprepared to defend. This instrument calculates a defensible peg using the institutional methodology: trailing twelve months average, seasonality-adjusted, sector-calibrated. The output is the peg you would defend against an institutional acquirer's Quality of Earnings examination.
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The Working Capital Peg Calculator applies TEOL Capital's institutional working capital methodology to produce a defensible peg using trailing twelve months data, seasonality adjustment, sector calibration, and adjustment discipline.
Step One assembles trailing twelve months monthly working capital position across accounts receivable, accounts payable, inventory, other operating current assets, and other operating current liabilities. The base calculation is the 12-month simple average of net working capital.
Step Two applies seasonality adjustment by comparing the close-month historical average to the 12-month average and applying the resulting adjustment factor. Seasonality adjustment moves the peg by 8 to 20 percent in businesses with material seasonality.
Step Three applies sector benchmark comparison calculating DSO, DPO, and DIO against sub-sector ranges with variance flags (Red above 20 percent variance, Amber 10 to 20 percent, Green within range).
Step Four applies institutional adjustments including non-operating items removal (related-party balances, owner personal items, litigation reserves), one-time event normalization, and growth normalization for forward working capital requirements.
Step Five produces the defensible peg range with low peg (adjusted average minus seasonality downside), mid peg (defensible institutional position), and high peg (adjusted average plus seasonality upside).
Step Six calculates value at risk for active transactions as the dollar gap between TTM simple average and defensible mid peg, representing the value transfer if the seller arrives at LOI without defensible documentation.
The Working Capital Bridge visualization shows the progressive narrowing of the peg from TTM simple average through each adjustment. The methodology trail documents each calculation step for defensibility in negotiation. The defensibility analysis identifies strong positions, at-risk positions, and acquirer exploit zones.
Calibrated to observed working capital negotiations across $20 to $100M revenue transactions in the past 36 months where working capital drove 35 to 55 percent of post-LOI value movement.