What is Working Capital Certificate?
A Working Capital Certificate is a financial document, typically issued by a company’s chief financial officer or a chartered accountant, that certifies the company’s net working capital at a specific point in time. It is most often used in business transactions, such as mergers and acquisitions, or when applying for a working capital loan.
How it is used
Mergers and Acquisitions: During a transaction, a working capital certificate can be delivered to the buyer to confirm the amount of net working capital. It is often part of a working capital adjustment to ensure the final sale price is based on the company’s financial health at the time of closing.
Loan Applications: A company may need to provide a working capital certificate to a bank when applying for financing. This helps the lender evaluate the company’s financial stability and ability to repay the loan by showing it has sufficient liquid assets.
Public Offerings: Companies raising capital through an initial public offering (IPO) may also require a working capital certificate to show potential investors how it plans to use the funds.
Loan Applications: A company may need to provide a working capital certificate to a bank when applying for financing. This helps the lender evaluate the company’s financial stability and ability to repay the loan by showing it has sufficient liquid assets.
Public Offerings: Companies raising capital through an initial public offering (IPO) may also require a working capital certificate to show potential investors how it plans to use the funds.
What it contains
A detailed Working Capital Certificate usually includes:
- An itemized list of the company’s current assets (e.g., cash, accounts receivable, inventory).
- An itemized list of its current liabilities (e.g., accounts payable, short-term debt).
- The overall net working capital, which is calculated as current assets minus current liabilities.
