# Residual Value to Paid In Capital in Private Equity

Residual Value to Paid In Capital - Usually the higher it is , the better it is based on the book.
But to me, this doesnt sound good because it represents unrealized gain or capital waiting to be deployed. So why do we necessary want this ratio to be higher?

What do you think happens to the ratio when capital is deployed?

the ratio goes down

What makes you think that?

Maybe I didnt understand it correctly, but as the capital gets deployed, doesnt it mean that the paid in capital goes up and the residual value goes down?

Deploying capital doesnâ€™t change paid-in capital. Making a capital call changes paid-in capital.

What makes you think that when you deploy capital the residual value goes down?

i think i am a bit confused here.
Residual value to paid in capital is Residual Value ( whats left after money has being called for investment)/Paid in Capital ( money that is being deployed for investment). Is my thinking correct? I feel like i got it all wrong.

Residual value is the value of the portfolio than hasnâ€™t been returned to the investors. Paid-in capital is the amount of money that the investors have put into the investment.

Suppose that you have committed capital of, say, \$500 million. You havenâ€™t made a capital call, so paid-in capital is zero and residual value is zero.

Now you make a capital call for \$100 million: every investor who has committed capital must deliver to you 20% (= \$100 million / \$500 million) of their commitment. When they do, you have paid-in capital of \$100 million and residual value of \$100 million. Suppose that you now deploy \$80 million of that paid-in capital (buying a pharmaceutical company, say; theyâ€™re hot right about now). Ignoring transaction costs, what 's the residual value?

can i think about it and come back to you with my answer?

Of course!

Left me wonderingâ€¦Will @Onda ever come back with the ans?

He will be back Onda-y

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Haha! Sure. We love having you around as well.

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