Working Capital assumptions - Management Case, Base Case capital, someone, higher, source, crack

SWASH

Hey guys,

I'm practicing some LBO modelling from a book.

In the working capital assumptions of a case study they have :

- Management Case : DSO = 65

- Base Case : DSO = 60,2

Can someone explain to me how that makes sense ?

A DSO of 60,2 is more optimistic than a DSO of 65 ( less cash trapped in A/R --> lower WC --> source of cash --> higher FCF ).

Am I on crack here ?

xilinx_altera

I'm not 100% sure of the logic but I'll take a stab. Typically the management case is more optimisitc and has more aggressive growth assumptions than the base case. As the company grows quickly it may be harder to collect A/R or they may extend more favorable payment terms to capture additional business. I'm not sure if that's what they have in mind but it's just a guess. I'm more in your camp.

ninja1024

Ok, that's a plausible theory, txs.
Didn't think of that. But in that case it would warrant a note in the book and there is none.

I still rather think it is a mistake.