Envy ratio

Description

Envy ratio in finance is the ratio of the price paid by investors to that paid by the management team for their respective shares of the equity. This metric is used when considering an opportunity for 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, for managers can increase returns on their investments by using other investors’ money.