Why is working capital important in MandA evaluations?

Working capital is crucial in M&A evaluations because it reflects a company's short-term financial health and liquidity. Understanding a target company's working capital gives acquirers insights into how well the company can manage its operational expenses and short-term liabilities. Adequate working capital means that a company has enough current assets to cover its current liabilities, which is essential for ongoing operations.

Assessing working capital involves analyzing accounts receivable, inventory, and accounts payable. These components are vital to determining how efficiently the target company operates and manages its cash flow. A company with strong working capital is better positioned to respond to market changes, manage unexpected expenses, and invest in growth opportunities, making it a more appealing candidate for acquisition.

While the other choices may touch on aspects related to a company's financial status or operational effectiveness, they do not specifically address the immediate liquidity needs that working capital encompasses. This makes option B the most directly related to the importance of working capital in M&A evaluations.