Liquidation Value
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. Liquidation value 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 bankruptcy law and corporate law, dating back to the late 19th and early 20th centuries. With the rise of industrialization, instances of corporate bankruptcy and liquidation increased, and liquidation value became an important metric for assessing the remaining assets of a company.
Categories and Characteristics: Liquidation value can be divided into forced liquidation value and orderly liquidation value.
- Forced Liquidation Value: When a company is forced to sell its assets immediately, it usually sells at a lower price, resulting in a lower forced liquidation value.
- Orderly Liquidation Value: When a company has time to gradually sell its assets, it can obtain higher prices, resulting in a higher orderly liquidation value.
Specific Cases:
- Case 1: A manufacturing company declares bankruptcy due to poor management. Its assets include a factory, machinery, and inventory. After evaluation, the factory is valued at 5 million yuan, machinery at 3 million yuan, and inventory at 2 million yuan. The final liquidation value is 10 million yuan.
- Case 2: A retail company goes bankrupt due to intense market competition. Its assets include stores, shelves, and inventory. After evaluation, the stores are valued at 8 million yuan, shelves at 500,000 yuan, and inventory at 1.5 million yuan. The final liquidation value is 10 million yuan.
Common Questions:
- Question 1: Does liquidation value include the company's debts?
Answer: Liquidation value refers only to the net value of assets and does not include the company's debts. Debts need to be handled separately during the liquidation process. - Question 2: Why are intangible assets not included in the liquidation value?
Answer: Intangible assets are difficult to realize in a short period and their market value is highly volatile, so they are usually not included in the liquidation value.
