Answers / Financial Due Diligence
How do you treat accrued but unpaid capex (capital creditors) in the net debt and working capital analysis?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Capital creditors — amounts owed for capex received but not yet paid — are typically treated as debt-like rather than ordinary working capital, because they represent committed funding obligations for investment, not the recurring trade cycle, and a buyer will have to settle them post-close. If you leave them in working capital they distort the NWC peg (the seller benefits from running up capex payables at completion), and if you ignore them entirely you understate the cash the buyer must find. So I'd carve capital creditors out of trade payables, classify them as a debt-like item in net debt, and make sure the NWC normalization isn't being flattered by a build-up of unpaid capex right before closing. The same logic applies to deferred or staged capital commitments.
WHAT INTERVIEWERS LISTEN FOR
- ✓Capital creditors are debt-like, not normal working capital
- ✓Leaving them in NWC lets the seller flatter the peg
- ✓Carve out of trade payables into net debt
- ✓Watch for pre-close capex-payable build-up
COMMON MISTAKES
- ✗Treating capital creditors as ordinary trade payables
- ✗Ignoring committed capex obligations
- ✗Letting the peg be flattered at completion
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