Liquidation Valuation Definition
Liquidation valuation is the value of a company that is bankrupt or going out of business. It is the value of the company’s assets, according to what they would be worth if they are sold off in order to repay creditors. This is in contrast to going concern value, which assumes the company will continue to operate for the foreseeable future. The difference between going concern value and liquidation value consists of intangible assets and goodwill.
Liquidation Valuation Example
For example, if a well-known apparel company is going out of business, it would have to sell off its assets – sewing machines, fabric, etc. – to pay creditors. The company would probably have to sell off its assets at a discount. In this case, the company would be valued according to its liquidation value. However, if the company is a going concern, it can continue to sell its brand-name clothing at a markup for a profit. It would then be valued according to its going concern value.
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