What is Liquidation Value?
457 reads · Last updated: December 5, 2024
Liquidation value is the net value of a company's physical assets if it were to go out of business and the assets sold. The liquidation value is the value of company real estate, fixtures, equipment, and inventory. Intangible assets are excluded from a company's liquidation value.
Definition
Liquidation value refers to the net value of a company's tangible assets if it were to go bankrupt and sell its assets. It includes the company's real estate, equipment, fixed assets, and inventory. Intangible assets are not included in a company's liquidation value.
Origin
The concept of liquidation value originated from the need for corporate bankruptcy law and financial analysis. As the legal framework for corporate bankruptcy and restructuring developed, liquidation value became an important tool for assessing the value of a company's assets in the event of bankruptcy.
Categories and Features
Liquidation value can be divided into forced liquidation value and orderly liquidation value. Forced liquidation value is usually lower because assets must be sold quickly, potentially below market price. Orderly liquidation value assumes assets can be sold within a reasonable time, closer to market price. The main feature of liquidation value is that it only considers tangible assets, excluding intangible assets like goodwill and patents.
Case Studies
During the 2008 financial crisis, the bankruptcy liquidation of Lehman Brothers is a typical case. Its liquidation value mainly came from the sale of its real estate and financial assets. Another example is the bankruptcy liquidation of Toys 'R' Us, where the liquidation value primarily came from its inventory and store equipment sales.
Common Issues
Investors often confuse liquidation value with market value. Liquidation value is typically lower than market value because it excludes intangible assets. Additionally, liquidation value can fluctuate based on market conditions and the urgency of asset sales.
