Peak Equity - What is it and how to calculate?
What exactly is peak equity, how do you calculate it; and what deals does it apply to? For example on a stabilized acq, I’d imagine your intial equity outlay equals your peak equity. So no need to calculate it.
Peak equity is simply the total equity that is input into a deal. Using leverage can lower your peak equity. Your peak equity would rise after initial acquisition if you had to drawdown further equity into the deal and is not offset by debt/revenue etc
+sumif("capital costs (i.e., your acquisition or development spend, the equity funding, the loan proceeds, the exit valuation, and then closing costs)","<"&0)
Its the maximum equity invested in a deal at any point in time over the deal lifetime.
To calculate, just calculate the respective cummulative levered cash flow for the respective quarter / month and the use a MIN function over that time series.
when you use a sum of all the negative cashflows (sumif = "<"&0) on a monthly basis vs a minimum function of the cumulative levered cashflow, you get two different answers for peak equity.
is there an industry wide agreed method or is it open to interpretation?
There is no agreed upon method. It’s up to you to decide what makes sense.
Some of the answers here are not clear/inaccurate so I'm going to try and give a better explanation.
Peak equity is the highest sum of equity invested in the deal at any point in time over the course of the investment. In other words, it is NOT simply the total equity invested (i.e. initial equity plus any capital calls) - if there is a capital event such as a refinancing that would result in capital distributions that reduce your equity balance in the deal before a later capital call is made, then your peak equity will be lower than total equity invested over the course of the time horizon.
The easiest way to calculate it is to have a running equity balance tracker in your model that sums all equity from the initial investment and any capital calls and deducts any income from refis or partial sales, and then run a MAX function on that row.
I understand peak equity as the maximum equity injection in any investigated period, i.e. if you're modelling on a monthly basis, what is your maximum unlevered/levered cash outflow in any given period (month). Cannot you just use a simple MIN function on UFCF/LFCF line?
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