Working capital peg

Set and evidence the target level of operating working capital delivered at closing so purchase-price adjustments reflect the agreed normal requirement.

Quick answer

A working capital peg is the target amount of net working capital used in a transaction's purchase-price adjustment. Closing net working capital is compared with the peg under agreed definitions and accounting policies. A shortfall commonly reduces price and an excess commonly increases price on the stated basis. The agreement determines the included accounts, exclusions, seasonality, consistency rules, measurement time and dispute process.

Use the worked example

Meaning and transaction use

An SEC-filed purchase agreement defines the estimated working-capital adjustment as estimated closing net working capital minus the closing target, expressed positively for an excess and negatively for a shortfall. [S1]

Another SEC-filed agreement requires the closing working-capital statement to use consistent accounting methods, practices, classifications, judgements and estimation methods, and provides supporting detail and a post-closing process. [S2]

Proposed control method: derive the peg from a documented historical period and approved normalisation schedule, then use the same account perimeter and accounting hierarchy for the closing estimate and final statement.

Worked example

Illustrative one-for-one adjustment only. Assume included closing current assets are 15.0 million, included closing current liabilities are 11.0 million and the agreed peg is 5.0 million. Ignore collars, caps, thresholds and other price adjustments.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Closing net working capital	15.0 - 11.0	4.0m
Working capital peg	Given	5.0m
Illustrative adjustment	4.0 - 5.0	-1.0m
Shortfall as share of peg	1.0 / 5.0	20.0%
Illustrative price effect	One-for-one decrease	-1.0m

Closing net working capital is 1.0 million below the assumed peg, producing a 1.0 million price reduction under the stated one-for-one assumption. The agreement controls the actual calculation and settlement.

Proposed transaction review process

Define the perimeter

List included accounts, exclusions, debt-like items, cash items and the accounting hierarchy.

Derive the peg

Analyse monthly history, seasonality, growth, one-offs, policy changes and transaction-specific normalisations.

Prepare the closing statement

Apply the agreed perimeter and policies to cut-off balances with account-level evidence.

Resolve and settle

Track objections, access to records, expert decisions, final calculation and resulting payment.

Evidence checklist

Historical evidence

Monthly balance sheets, ledgers, account definitions, ageing, seasonality and policy records.

Peg support

Selected reference period, normalisation schedule, exclusions, approvals and sensitivity analysis.

Closing support

Cut-off testing, invoices, receipts, accruals, inventory, payroll and account reconciliations.

Agreement record

Definitions, accounting hierarchy, timetable, access rights, objections and dispute provisions.

Decision framework

Situation	Proposed action
The business is seasonal	Use evidence across the operating cycle and quantify why the chosen peg represents the agreed normal level.
Growth changes working-capital needs	Separate supported structural change from temporary timing and document the agreed treatment.
An item is also proposed as debt-like	Assign it once under the agreement and reconcile the net-debt and working-capital schedules.
The final statement is disputed	Use the contractual objection, information-access and expert-determination procedure.

Common errors to check

Using a simple average without testing seasonality or structural change.
Changing accounting classifications between the peg and closing statement.
Double counting an item in working capital and net debt.
Ignoring cut-off, ageing and recoverability at the measurement time.

Test the working capital peg

Bring the monthly balance sheets, account definitions, normalisation schedule and draft purchase-price provisions to a working-capital review. Reconcile the peg, closing method and dispute mechanics before signing.

Discuss the transaction

Primary references and editorial scope

SEC filing: Purchase agreement with a closing net working capital target
Example definition of a working-capital adjustment as the difference between estimated closing net working capital and the target. Reference checked 17 September 2026.
SEC filing: Stock purchase agreement with closing working-capital procedures
Example consistency requirements, supporting detail, post-closing statement and dollar-for-dollar adjustment. Reference checked 17 September 2026.

Editorial qualification

General transaction education using United States public-filing examples. Figures and adjustment mechanics are hypothetical. The executed agreement, accounting hierarchy, tax treatment, currency and jurisdiction govern the actual calculation.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.