Answers / Financial Due Diligence
How would you normalize NWC for a seasonal business?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Don't use a simple 12-month average – it misrepresents any given month. Instead: (1) compare same-month year-over-year (March vs. March), (2) use a month-matched average (average of all March NWC over 3 years), (3) or use a rolling seasonal peg that adjusts based on the actual closing month. Present the seasonality analysis clearly in the report.
WHAT INTERVIEWERS LISTEN FOR
- ✓Avoid 12-month average
- ✓Year-over-year same-month comparison
- ✓Month-matched average over years
- ✓Rolling seasonal peg adjustment
- ✓Present seasonality analysis clearly
COMMON MISTAKES
- ✗Using simple 12-month average
- ✗Ignoring seasonal patterns
- ✗Failing to adjust for closing month
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- Why is the NWC peg important?
- A seller argues that accrued bonuses are part of NWC, not debt-like. How do you respond?
- How do you handle factoring/receivables financing in FDD?
- How do you handle IFRS 16 lease liabilities in a CFDF deal?
- Explain the concept of 'debt-like items' in Net Debt calculation. Why is a tax liability from a recent acquisition considered debt-like, but a routine tax payable is not?
- Explain the concept of 'normalized net working capital' for a seasonal business. How would you calculate the peg in a completion accounts mechanism?