Is cash included in the peg?

Not in a cash-free, debt-free deal, which is the common structure. Cash and cash equivalents are settled separately at close, and debt and debt-like items are captured by the indebtedness definition rather than the working capital definition. What counts as debt-like is negotiated and frequently contested.

What is a working capital true-up?

The post-closing settlement. An estimated closing statement funds an adjustment at close; once the final figure is determined, the difference between the adjustment the deal should carry and the adjustment already funded is paid between the parties, usually with an escrow or holdback securing a seller-owed amount.

What is the difference between a collar and a deadband?

A deadband passes the entire variance once the band is breached, so the threshold is a cliff. A collar passes only the excess beyond the band, so the band survives the breach. The mechanics are often referred to interchangeably and produce materially different numbers on the same facts.

Is the peg the same thing as purchase price allocation?

No. The peg drives a purchase price adjustment, which changes the amount paid. Purchase price allocation spreads an agreed price across acquired assets for tax reporting and takes the adjusted price as its input.

Deal tools

Working Capital Peg Calculator

The peg is the quietest number in the purchase agreement and one of the few that moves cash on both sides of the close. Enter twelve months of working capital, pick the methodologies under discussion, and the calculator prices the gap between them.

Quick Answer

A working capital peg is the target level of net working capital the business is expected to carry at close. The purchase price adjusts by the difference between the peg and the working capital actually delivered — first against an estimate at close, then against the final determined figure in a post-closing true-up.

What the argument is worth

$288,889

The distance between the highest and lowest final purchase price your methodologies produce off identical data. A seasonal window (9 months) is worth that much more to the seller than a negotiated point.

There is no market-standard peg methodology, and this calculator does not supply one. A trailing twelve-month average, a seasonally adjusted window, and a negotiated point are all defensible; which one lands in the agreement is a negotiated outcome, not a convention. What the arithmetic can settle is the size of the disagreement.

Step 1

Trailing twelve months

Current assets excluding cash and cash equivalents; current liabilities excluding debt and debt-like items. Net working capital is derived, not entered.

Month	Current assetsexcl. cash	Current liabilitiesexcl. debt	Net working capital	Representativewindow
Aug 2025			$3,700,000
Sep 2025			$3,850,000
Oct 2025			$4,500,000
Nov 2025			$5,300,000
Dec 2025			$6,100,000
Jan 2026			$3,500,000
Feb 2026			$3,200,000
Mar 2026			$3,650,000
Apr 2026			$4,050,000
May 2026			$4,400,000
Jun 2026			$4,700,000
Jul 2026			$4,950,000

Seasonal swing

$2,900,000

67.0% of the mean

Peak month

$6,100,000

Dec 2025

Trough month

$3,200,000

Feb 2026

A wide swing is the case for a representative window. A flat series removes most of the argument for one.

Step 2

Set the peg under each methodology

Three defensible readings of the same twelve months. None is preselected.

Trailing average window

A shorter window tracks where the business sits now. On a rising series that raises the peg and moves money to the buyer.

Negotiated point

The flat figure on the table, informed by the data without being derived from it.

Trailing average

Average the monthly net working capital across a fixed window ending at the most recent close. The window length is the argument: twelve months smooths a full seasonal cycle, three months tracks where the business currently sits.

Who it favours: Whichever side the recent trend suits. In a business building working capital as it grows, a short window raises the peg and lands on the seller; a long window lowers it and lands on the buyer.
Where it breaks down: When the trailing period contains a one-off — a collections push, a stocking build for a launch, a payables stretch before close. The average carries the distortion into the peg at full weight.

Seasonally adjusted window

Average only the months the parties treat as representative, dropping the peak and trough that a full-year average would otherwise bake in. The selection has to be argued month by month rather than asserted.

Who it favours: A business with a genuine seasonal shape, where an unadjusted average sets a peg the company only ever hits twice a year.
Where it breaks down: When month selection becomes the negotiation. Every excluded month is a position, and a window chosen after the parties can see the answer is a number in search of a justification.

Negotiated point

A flat figure written into the agreement, informed by the data without being derived from it. Frequently where a contested peg actually settles.

Who it favours: Certainty. Both sides know the target before diligence closes, and there is no methodology left to dispute after signing.
Where it breaks down: When the business moves between agreement and close. A fixed point does not follow growth, so the party the drift favours keeps the benefit and the other side argues about the estimated closing statement instead.

Step 3

Collar or deadband

Two mechanics referred to interchangeably in practice, producing materially different numbers on identical facts.

Mechanic

Band basis

Band size

Final variance of +$185,000 against a band of $216,250, run through all three mechanics.
Mechanic	Adjusts the price	Absorbed by band	What it means
No band	+$185,000	$0	Every dollar of variance from the peg moves the price. Simple to administer, and it guarantees a post-closing settlement over amounts too small to be worth the accountants.
Deadband (full adjustment on breach)	$0	+$185,000	No adjustment inside the band; break it and the entire variance adjusts, including the part inside the band. This is a cliff, and it makes the dollar either side of the threshold worth the whole band.
Collar (excess only)	$0	+$185,000	No adjustment inside the band; break it and only the excess beyond the band adjusts. The band is retained on breach, so there is no cliff and no incentive to argue a figure across a threshold.

Step 4

Close, then true-up

An estimated closing statement funds the adjustment at close. The final determined figure sets the adjustment the deal should carry. The difference is paid between the parties.

Base purchase price

Estimated closing NWC

Final determined NWC

Escrow / holdback

Price wired at close

$28,475,000

True-up payment

−$290,000

Seller owes buyer

Final price

$28,185,000

Step 5

What each methodology is worth

One data set, one close, three pegs, three prices.

Methodology	Peg	Adjustment at close	True-up	Final price	vs lowest
12-month trailing average	$4,325,000	+$475,000	−$290,000	$28,185,000	+$75,000
Seasonal window (9 months)	$4,111,111	+$688,889	−$290,000	$28,398,889	+$288,889
Negotiated point	$4,400,000	+$400,000	−$290,000	$28,110,000	$0
Spread	$288,889			$288,889

This is a purchase price adjustment: it changes what gets paid. It is not purchase price allocation, which spreads an already-agreed price across the acquired assets for tax reporting. The two share a noun and nothing else, and the allocation schedule takes the adjusted price as an input rather than the other way round.

Step 6

The arithmetic

Every step behind the selected methodology, in order. A peg nobody can re-derive is a peg nobody can defend.

Peg — 12-month trailing average

Aug 2025: $3,700,000.00
Sep 2025: $3,850,000.00
Oct 2025: $4,500,000.00
Nov 2025: $5,300,000.00
Dec 2025: $6,100,000.00
Jan 2026: $3,500,000.00
Feb 2026: $3,200,000.00
Mar 2026: $3,650,000.00
Apr 2026: $4,050,000.00
May 2026: $4,400,000.00
Jun 2026: $4,700,000.00
Jul 2026: $4,950,000.00
Sum of 12 months: $51,900,000.00
Peg$51,900,000.00 ÷ 12: $4,325,000.00

Close and true-up

Peg: $4,325,000.00
Estimated closing NWC − pegVariance shown on the estimated closing statement.: $475,000.00
Adjustment funded at closeNo band: the full variance moves the price.: $475,000.00
Price wired at close: $28,475,000.00
Final determined NWC − pegVariance on the agreed or resolved post-closing statement.: $185,000.00
Adjustment the deal should carry: $185,000.00
Final price: $28,185,000.00
True-up paymentNegative: seller owes buyer, typically out of escrow.: -$290,000.00
Unsecured true-up exposureSeller-owed true-up beyond the escrow or holdback.: $0.00

Take the model with you

The calculator is free and asks for nothing to run. The export carries the grid, every methodology, and the settlement — including the alternatives you did not pick, which is the part worth having in the room.

Method

1. Enter twelve months of working capital
For each month, enter current assets excluding cash and cash equivalents, and current liabilities excluding debt and debt-like items. The calculator derives net working capital for the month.
2. Read the seasonal shape before choosing a methodology
Compare the highest and lowest month. A wide swing is the case for a representative window; a flat series removes most of the argument for one.
3. Set the peg under each methodology
Configure the trailing average window, select the months in the representative window, and enter any negotiated point on the table. Each produces its own peg from the same data.
4. Choose the band mechanic
Decide whether variance is unbanded, sits inside a deadband that passes the full variance on breach, or sits inside a collar that passes only the excess. Set the band as a percentage of the peg or a flat dollar amount.
5. Model the close and the true-up
Enter the estimated closing net working capital that funds the closing payment and the final determined figure. The calculator produces the adjustment at close, the adjustment the deal should carry, and the true-up payment between them.
6. Price the methodology choice
Read the side-by-side comparison. The spread between the highest and lowest final price is what the methodology argument is worth before either side has taken a position.

Adjustment is not allocation

Questions

What is a working capital peg?: The target level of net working capital the business is expected to carry at close. The purchase price adjusts by the difference between the peg and the working capital actually delivered, so the seller neither profits from stripping working capital before close nor funds the buyer's first operating cycle for free.
Is cash included in the peg?: Not in a cash-free, debt-free deal, which is the common structure. Cash and cash equivalents are settled separately at close, and debt and debt-like items are captured by the indebtedness definition rather than the working capital definition. What counts as debt-like is negotiated and frequently contested.
What is a working capital true-up?: The post-closing settlement. An estimated closing statement funds an adjustment at close; once the final figure is determined, the difference between the adjustment the deal should carry and the adjustment already funded is paid between the parties, usually with an escrow or holdback securing a seller-owed amount.
What is the difference between a collar and a deadband?: A deadband passes the entire variance once the band is breached, so the threshold is a cliff. A collar passes only the excess beyond the band, so the band survives the breach. The mechanics are often referred to interchangeably and produce materially different numbers on the same facts.
Is the peg the same thing as purchase price allocation?: No. The peg drives a purchase price adjustment, which changes the amount paid. Purchase price allocation spreads an agreed price across acquired assets for tax reporting and takes the adjusted price as its input.