20 articles

Cash, Working Capital & Funding

The mechanisms, review criteria, and decision patterns that determine how this area is underwritten, governed, and priced.

All topics
  1. 01May 23, 20267 minCash Flow Forecasting: The Review Side Reads the Mechanism, Not the NumberIn most companies the cash flow forecast lives not in a document but in a single person's judgment. What a diligence process actually measures is not the accuracy of the projection but whether the machinery that produces it, and records its own error, exists independently of that person — a distinction that travels directly into valuation and deal structure.
  2. 02May 23, 20268 minCash Position: A Bank Balance Is a Number, a Position Is a DefinitionA cash position is not the figure on the banking screen; it is that figure disaggregated into free, restricted, committed and minimum operating components, each supported by evidence. Where that disaggregation has never been built inside the company, a portion of the balance tends to migrate into the debt-like column of the valuation bridge.
  3. 03May 23, 20268 minMinimum Cash Requirement: How Much of the Balance Belongs to the Business, and How Much to the Seller?Where a minimum cash requirement has never been formally defined, the reviewing party answers the question of how much of the account balance the operation actually needs — and in the absence of a definition, that answer is calibrated conservatively. The consequence lands directly in the price.
  4. 04May 22, 20269 minThe Cash Conversion Cycle: Why a Profitable Company Runs Out of CashIn most companies the cash conversion cycle is not a ratio anyone computes but a residue left behind by sales, procurement and finance deciding independently of one another. What a review table looks for is not the level of the number, but who owns it, with what authority, and on what rhythm.
  5. 05May 22, 20268 minPayment Terms: How a Company Proves That a Payables Policy Actually ExistsIn most companies, days payable is not a written policy but a decision made each morning by whoever looks at the bank balance before releasing the payment run. A diligence team detects that difference within the first week, and once detected, it prices not the ratio itself but the management capacity standing behind it.
  6. 06May 22, 20269 minDays Sales Outstanding: The Gap Between the Reported Figure and the Aging ScheduleIn most companies days sales outstanding is not a monitored indicator but a calculation produced on the day it is requested. The reviewing party looks past the figure itself toward how it is defined, who owns it, and whether it can be reproduced without the founder; the valuation consequence follows directly from the answers to those three questions.
  7. 07May 22, 20269 minDays Inventory Outstanding: The Institutional Record of Cash Parked in the WarehouseIn most companies days inventory outstanding is not an indicator but a residue calculated after the period closes; what the diligence table looks for, however, is not the figure itself but the identity of the person who governs it, the cadence at which it is reviewed and the authority under which it is changed. Where that distinction is absent, the working capital adjustment becomes negotiable and the valuation is quietly recalibrated downward.
  8. 08May 21, 20268 minCustomer Advances: Whose Cash Is in the Account, and Under What Conditions Does It Stay There?A customer advance is simultaneously a funding source and a conditional obligation; the reviewing party looks past the cash balance to the contractual clause that created the advance, the conditions under which it must be returned, and the person who granted the exception. Where that record is absent, the shortfall reaches valuation through the net debt bridge.
  9. 09May 21, 20268 minSupplier Credit: How an Off-Balance-Sheet Funding Line Reads at the Diligence TablePayment terms extended by suppliers are rarely managed as a funding source; in most companies they are carried as a habit. What the reviewing party asks is not how long the terms are, but which document, which security, and which individual they rest upon — and the clarity of those three answers feeds directly into the net debt definition and the closing price.
  10. 10May 21, 20269 minWorking Capital Requirement: What an Undefined Figure Costs at ValuationBecause working capital requirement corresponds to no single account in the ledger, most companies never calculate it and instead let the credit line stand in for it. On the review table that gap reaches valuation through three separate channels: the closing price adjustment, the net debt bridge, and the credibility of the growth plan.
  11. 11May 20, 20269 minInterest Cost: A Line on the Income Statement, or a Price That Is Actually Managed?In an investment review, the question underneath interest cost is never the rate itself but whether that rate has become an input to decisions taken elsewhere in the business. The gap between the nominal coupon and the all-in cost actually borne tends to be read less as evidence of financing discipline than as evidence of working capital discipline.
  12. 12May 20, 20268 minCollateral Encumbrance: The Debt a Company Tracks and the Burden It Does NotCompanies monitor loan balances weekly, yet most see their full collateral position assembled for the first time only during a diligence process. That asymmetry allows over-collateralization to accumulate quietly, exhausts the unencumbered asset base, and turns unreleased guarantees into closing conditions — with the bill delivered directly in the valuation.
  13. 13May 20, 20267 minCredit Facilities: The Gap Between Allocated Headline and Drawable LiquidityThe aggregate facility figure a company reports and the liquidity capacity a diligence team can verify are rarely the same number. The distance between them — driven by commitment status, the collateral chain, utilisation patterns and change-of-control provisions — reaches valuation through the net debt bridge and the closing conditions.
  14. 14May 20, 20267 minDebt Maturity Structure: The Calendar That Does Not Appear on the Balance SheetA company's borrowings sit on the balance sheet as a single aggregate; what a reviewing party looks for, however, is not the aggregate but its distribution across the next thirty-six months. Whether that maturity calendar exists as an institutional record frequently determines the direction of the valuation discussion.
  15. 15May 19, 20268 minCurrency Risk: The Gap Between the Accounting Entry and the Position RecordIn most companies currency risk is managed as a realized income-statement line; at the diligence table it is examined as a tenor-based position discipline. The distance between those two views reaches valuation not through the multiple but through doubt about the quality of earnings.
  16. 16May 19, 20269 minHedging Policy: Protection, or a View on Direction?The distinction between a company that says it manages currency and commodity exposure and one that does so inside a written authority framework is precisely what an investment review measures. The moment a hedging decision becomes contingent on an expectation about where the rate is heading, the company has stopped hedging and started taking a position, and that distinction travels directly into valuation.
  17. 17May 19, 20268 minInterest Rate Exposure: The Distance Between a Reported Figure and a Managed PositionIn most companies, interest rate exposure exists not as a managed discipline but as the residue left behind by an accumulation of separately negotiated credit agreements. What the review table looks for is not the cost of debt but the question of who tracks that cost, against which record, and on what cadence — a distinction that translates directly into the valuation multiple.
  18. 18May 18, 20268 minThe Capital Expenditure Plan: The Gap Between the Number on Paper and the Asset on the FloorIn most companies the capital expenditure plan is not a document but a sequence carried in the minds of two or three people. When the diligence table asks to see that sequence, the resulting gap is priced not as a modelling assumption but as a permanent reduction in the base of free cash flow.
  19. 19May 18, 20268 minThe Funding Gap: A Residual Figure, or a Managed Position?In most companies the funding gap is a residual nobody produces directly: it falls out of three separate models, has no single owner, and is often calculated for the first time at the diligence table. That absence reaches valuation not as a line in the price build-up but through the definition of net debt, the conditions attached to closing, and the timing of the negotiation itself.
  20. 20May 18, 20268 minThe Use of Proceeds Plan: Less About Where the Money Goes, More About Who Owns the DecisionIn most companies the use of proceeds plan is born as an annex to an investment deck and never leaves that document. What the review table looks for, however, is not the distribution across line items but the mechanism by which that distribution is revised. The institutional maturity of the plan becomes visible only at the moment of deviation.