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Net Equity

Definition

Net equity value is defined as the difference between the fair market value of business assets and its liabilities.

What It Means

Net equity value is one measure of business value produced by the Multiple of Discretionary Earnings business valuation method. The method also requires an adjustment for liquid assets of the business as the difference between its current , minus inventory; and current liabilities, minus the short-term portion of the long-term debt.

Valuing a business on the net equity basis

You can determine the net equity value by subtracting the total debt used to finance business operations or its acquisition, if any, from the business enterprise value.

The Multiple of Discretionary Earnings business valuation method determines business value on the net equity basis by multiplying its discretionary cash flow by a multiplier factor. This multiplier is calculated from a set of key business financial and operational performance parameters. This gives the business enterprise value. Business net equity is then determined by subtracting business liabilities.

Company Valuation based on Multiple of Earnings

See Also