Normalised working capital (working capital peg)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

Normalised working capital is the level of receivables, stock and payables a business needs to trade in an ordinary period, usually an average of month-end balances over the past year, adjusted for one-off items and seasonality. In an acquisition priced on completion accounts it becomes the target, or peg: if the business is handed over with US$7m of working capital against a peg of US$8m, the price usually falls by US$1m. A lender reads the same figure when it sizes a working capital facility, and treats a balance held below normal just before a sale or a refinancing as a cash need postponed, not removed.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.