LIQUIDATION

VALUE

GROUP 1 – BSA-21A1
Lascano, Ma. Bernadeth
Garcia, Andrea Leigh
Redondo, Jacelle
De Quiroz, Glory
Gurne, Iris
Capales, Jona
Haballa, Mickeyla
Panal, Jannika
Rañola, Nikki
Liquidation
- the process of bringing a business to an end and distributing its assets to claimants.
- usually occurs when a company is insolvent.
- the term may also be used to refer to the selling of poor-performing goods at a price
lower than the cost to the business or at a price lower than the business desires.

Liquidation Value
- According to the CFA Institute, liquidation value refers to the value of a company if it
were dissolved and its assets were sold individually.
- the expected value of the asset once it has been liquidated or sold, presumably at a loss to
historical cost.
- also known as Net Asset Value.
- Intangible assets, like goodwill, intellectual property, and brands, are not considered as
part of the estimation of liquidation value.

Two Variations

Orderly Basis Liquidation Value

- The liquidation event is conducted on an orderly basis, where the seller spends a limited
amount of time researching and evaluating possible buyers and their offers.
Forced Basis Liquidation Value
- If the liquidation event is forced, such as via a one-day auction, the value obtained will be
lower than would be the case with an orderly sale.

Difference between Liquidation Value and Going-concern Value

Liquidation Value
- the amount that could be realized by selling the assets of a business in a forced or
distressed situation.
- applied to firms that have been closed or when the operations of the company have
ceased.
- does not consider the value of intangible assets.
- the minimum value of a firm the operation of which has been ceased.
Going-concern Value
- the amount that could be obtained by selling the business as a whole, assuming that it will
continue to operate and generate cash flows in the future.
- done when the business is ongoing.
- considers intangible assets while calculating the firm's value.
- higher in amount because it represents the future value of the asset
How to Calculate Liquidation Value
- Liquidation value can be calculated by removing the value of all assets and liabilities of a
company from its financial report. The subtraction of liabilities from assets will give
investors the liquidation value.
- When working with liquidation value calculations, an investor should exclude intangible
assets, such as goodwill, brand recognition, and intellectual property.

Liquidation Value = Auction Value of Assets - Total Liabilities

Example 1:
Unlimited Ltd. listed a market capitalization of $500 million on the stock exchange. The
company also reported liabilities totaling $150 million and a book value of $400 million. The
appraiser estimates the value of Unlimited’s assets at $380 million in the auction market.

Liquidation Value
= Auction Value of Assets - Total Liabilities
= $380 million - $150 million
= $230 million

The liquidation value of Unlimited Ltd. is $230 million, found by subtracting $150 million in
liabilities from $380 million in auction value.

Example 2:
Assume liabilities for company A are $550,000. Also, assume the book value of assets found on
the balance sheet is $1 million, the salvage value is $50,000, and the estimated value of selling
all assets at auction is $750,000, or 75 cents on the dollar.

Liquidation Value
= Auction Value of Assets - Total Liabilities
= $750,000 - $550,000
= $200,000

The liquidation value of Company A is $200,000, found by subtracting $550,000 in liabilities

from $750,000 in auction value.