Working Capital Adjustments: One Size Doesn't Fit All

Most purchase and sale agreements contain one or more post-closing purchase price adjustments, the most common of which is a working capital adjustment. In order to craft a working capital adjustment that is appropriate for a particular transaction, it is first necessary to understand how working capital adjustments actually work. This article looks at why working capital matters and suggests the importance of understanding the accounting implications of typical working capital adjustment provisions. It then makes some practical recommendations as to how to best address this issue.