Net equity value is defined as the difference between the business' net liquid assets and its long-term liabilities.

Net equity value is used by the Multiple of Discretionary Earnings business valuation method. The method defines net liquid assets of the business as the difference between its current assets, 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 long-term debt to be assumed by the business buyer, if any, from the net liquid assets.

The Multiple of Discretionary Earnings business valuation method uses net equity as an adjustment to the business value determined by multiplying its discretionary cash flow by the multiplier factor.

Company Valuation based on Multiple of Earnings