In this workout, we're told a business is acquired on a cash and debt-free basis.

Now, this is just posh language to mean that it's been valued using its enterprise value and that enterprise value gets locked in.

But the amount you actually pay, you still need to go over the enterprise value bridge.

So you add cash, you subtract debt, you still pay the equity value.

Okay? So we're going to start by valuing our company using the enterprise value, but we'll still pay the equity value as normal.

We're then told between agreements and completion, the company enters into numerous transactions, meaning the figures change, calculate the equity value at completion R.

So here we've got agreements and our enterprise value 550,000.

We then add the cash, subtract the debt to get to the equity value.

But between agreements and completion, as noted, there were numerous transactions and the cash has gone up a bit.

Fair enough. That means when we come to completion, we'll have to add the cash, subtract the debt, our equity value that we'll have to pay.

Uh, we'll have to, we'll have to pay a bit more, but that's okay because the enterprise value was locked in cash free, debt free basis.

How there is more to it, if we go down to the balance sheet extract, we've got here lots of items involved in operating working capital and we can see that the inventory, oh dear, it went down markedly.

I thought I was buying 23,213 of inventory.

Turns out I'm only now buying 15,000 and the account's receivables gone down as well.

Oh, hang on. It feels like what I'm buying has less stuff in it.

It's split like buying a house and then you come to actual completion and all the fixtures and fittings have been ripped out.

Hmm, I'm not sure I should be paying as much.

Let's double check the calculation of operating working capital.

So we'll take our total operating current assets minus the operating current liabilities.

Let's see what the net is, not just inventory and accounts receivable.

Let's see what the net is.

So we thought that we were buying 18,018 of operating working capital.

If I copy that to the right, oh dear.

The operating working capital's gone down markedly.

We thought we were buying 18,000. It turns out we're buying negative 6,900.

This means a lot of cash has been extracted from the operating working capital.

It's been extracted from inventory, it's been extracted from accounts receivable and other items.

So what's the impact on cash flow? Well, cash.

Cash should have gone up 24,931.

I can see that that has not happened.

My cash has gone up by less so there have been other Transactions.

Maybe the old owners paid themselves a dividend.

What this means is that we should not be paying as high an enterprise value as we were.

And a summary comment here says, operating working capital has reduced, which reduces the enterprise value.

So what we need to do now is go back and change that enterprise value even though it was locked in, even though we're doing a cash free debt free basis, which means that EV should be locked because operating working capital has changed.

We need to change the EV.

So we start off with the unadjusted enterprise value.

Up at the top here it was five 50.

We're now going to adjust it down by 24,931.

Our new adjusted enterprise value are much lower as we still need to work out how much equity we're actually going to pay.

So we now start with that enterprise value, and we're going to go over the EV bridge.

So we take the cash that we had at completion, 18,000.

We take the debt as well, 60,000.

So the adjusted equity value that we should pay 483,000 and a bit.

So let's compare to the original figures at agreement.

The original figures at agreement had a higher EV and thus a higher equity value.

We've had a 24,000 change in the operating working capital, but the equity value has come down from 500,000 to 483.

So why is that difference? Well, yes, the operating working capital came down by 24,000, but the cash has gone up slightly.

So slightly offsetting that.

So when doing a cash free, debt-free basis lock in your enterprise value, but then check for any reasons why that enterprise value has changed and why you perhaps should update it.