Answers / Financial Due Diligence
A seller argues that accrued bonuses are part of NWC, not debt-like. How do you respond?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
It depends on the nature: if bonuses are a regular, recurring operational cost paid annually, they can be argued as NWC (they're part of the normal operating cycle). But if bonuses are deal-triggered (retention bonuses tied to the transaction) or discretionary (one-off performance bonuses), they're debt-like. The key test: is this a pre-deal obligation that the buyer shouldn't fund? If yes, it's debt-like.
WHAT INTERVIEWERS LISTEN FOR
- ✓Regular recurring bonuses are NWC
- ✓Deal-triggered or discretionary bonuses are debt-like
- ✓Key test: pre-deal obligation buyer shouldn't fund
COMMON MISTAKES
- ✗Treating all bonuses as NWC without analysis
- ✗Ignoring deal-triggered or discretionary nature
- ✗Confusing NWC with debt-like items
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