Equity Sale Value
Includes the assets listed above PLUS liquid financial assets LESS all liabilities (ST/LT).
Involves the full transfer of the legal entity including current tax attributes. Buyer operates
business from historical legal entity.
Remember that the value of the firm’s “equity” is the key value perspective when dealing with
shareholder/partner/member transactions. A “buy-sell agreement” among shareholders should
revolve around the equity value due to each owner’s interest in ALL of the firm’s assets and ALL
of its liabilities. Business valuations for purposes of gifting or estate tax planning should also be
based on the equity value.
Using a Home Investment to Clarify Differences
Understanding the difference between the “asset sale value” and the “equity sale value” is a
critical skill when discussing the report with clients. A practical example involving home
ownership can shed light on the key differences. As a homeowner, there are two different types
of “value” attributed to the ownership interest. The “asset sale value” would be what the home
could be sold for on the open market, e.g. $1 million. The “equity sale value” would be the
difference between what the home could be sold for and what the current mortgage balance is,
e.g. $500K. The asset sale value is $1m and the equity sale value is only $500K due to the
presence of the liability (mortgage debt).
A business is a bit more complex in that the asset sale value must also account for the “other”
assets not included in the base definition of the asset value. Specifically, the equity value is
Asset Sale Value PLUS Liquid Financial Assets LESS Liabilities