Envy ratio

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Envy ratio in finance is the ratio of the price paid by the investors to that paid by management team the for their respective shares of the equity. This metric is used when considering an opportunity of a management buyout. Managers are often allowed to invest at lower valuation to make their ownership possible and to create a personal financial incentive for them to approve the buyout and to work diligently towards the success of the investment. The envy ratio is somewhat similar to the concept of financial leverage.

1 Basic formula
2 Example
3 See also
4 External links

[edit] Basic formula

ER = (investment by investors / % of equity) / (investment by management / % of equity)

[edit] Example

If private equity investors paid $500M for 80% of a company's equity, and management team paid $60M for 20%, then ER=(500/80)/(60/20)=2.08x. This means that managers paid for a share 2.08 times less than did the investors.