WHAT IS PRIVATE EQUITY IN LAYMAN'S TERMS?
Let's
say your friend is selling a beat-up old car for Rs.500.
![]() |
Image Courtesy: Business Wolf |
You
think the car's got some potential, so you go to the bank and borrow Rs.400, and you shell out Rs.100 of
your own money to buy it. You've now just entered into an investment funded
by 20% equity and 80% debt.
Now
you start fixing up the car in your garage to increase its value. You fix the
engine so that it quits making that popping noise, and you apply a nice new
shiny coat of paint to the car. All this costs you an extra Rs.100. On the side, you also
earn Rs.100/month giving
your friends rides to work every morning using the car.
You
use that Rs.100/month to start paying down your original Rs.400 loan
from the bank (+ whatever interest you've accumulated), and after 5
months, you pay it down completely. You've just deleveraged your
investment. What's more, your car is now worth Rs.1000 since
you fixed it up and it doesn't make that popping sound anymore. So you exit
your investment by selling it to a used-car dealership.
So
what's the damage? Well, you really only had to invest Rs.200 (your original Rs.100 +
Rs.100 to fix it up),
and you ended up selling it to the used-car dealership for Rs.1000. You've made 5x your money in 5 months! Not too shabby!
Private
equity is basically the same thing, though with real companies and over larger
time scales. They take cheap and under-performing companies with potential, take
them private through a leveraged
buyout (LBO), and eventually exit
at a profit by selling it to someone else.
Bibliography:
- Google.com
- Quora
- Investopedia
plumber toronto
ReplyDeleteplumber mississauga
plumbing companies toronto
plumbing companies mississauga
plumbing services toronto
plumbing toronto
Plumbers Etobicoke
Plumbers Mississauga
Plumber Mississauga
Basement Waterproofing Mississauga
best furniture online
Furniture in Australia
Furniture in New South Wales
Furniture in Sydney
Travel bhutan tour
Trekking bhutan tour
Marathon bhutan tour
Luxury bhutan tour
Best Tour package Bhutan
Latin Bands In Los Angeles
Latin band for marriage
Mariachi Band Los Angeles
Cruise to Antarctica
Cruises to Antarctica
Antarctica Cruise
Antarctica Cruises
Tours to Antarctica
Smart coffee
Weight loss coffee
Coffee for weight loss
Best weight loss coffee
Bhutan tour
Bhutan tour and travel
Adventure bhutan
Tour bhutan
Bhutan visit
quickbooks support phone number
quickbooks support online
https://aqualuxdp.ca/
https://www.torontoplumbinggroup.com/
https://www.bestpricefurniture.com.au/
https://adventurebhutan.com/
https://divinegrupomusical.com/
https://www.polarholidays.com/
https://www.livegreenhealth.com/
https://myquickbook.com/