Seasonality, explained simply
Judging a business on its strongest quarter overstates it. Judging it on its weakest understates it. Two to three years of monthly data are needed to measure the pattern.
Seasonality bears on four areas: run-rate claims, the working capital peg, the closing date and the cash needed to fund the slow season.
Share of annual EBITDA by quarter
IllustrativeAlder Creek Manufacturing, %
Q3 is consistently the strongest quarter at about 28% of annual EBITDA.
Worked example
Alder Creek’s Q3 EBITDA is consistently about 28% of the year. Q3 2026 EBITDA of $1.3 million therefore implies an annual figure of about $4.6 million (1.3 ÷ 0.28). That is well below the $5.2 million the seller derived by multiplying Q3 by four, and close to the LTM figure of $4.7 million.
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
Where seasonality affects a transaction
- Run-rate: annualizing a peak period overstates earnings
- Working capital peg: balances swing through the year, so the target should use a twelve-month average
- Closing date: closing at a seasonal high or low changes the working capital delivered
- Cash needs: the buyer may need a revolving facility to fund the slow season
Why it matters in a deal
Seasonality can distort run-rate claims and working capital targets, both of which translate directly into price.
Red flags
- Run-rate claims built on peak months
- A working capital target set from a single month end
- A change in the seasonal pattern that no one can explain