What is Liquidation Value?

Liquidation value refers to the estimated value that can be obtained by liquidating a property. One can apply liquidation value to real estate, companies, and other types of assets.

Generally speaking, the liquidation value is lower than the fair market value. A skilled accountant can estimate the liquidation value and provide other value estimates. 

Liquidation Value Is The Estimated Amount

Liquidation value is the estimated amount of assets that can be sold. If it is a non-performing asset or compulsory liquidation value, it is determined by determining how much the value of the property will be if the property is sold immediately. In this case, assuming that the seller needs to liquidate quickly and cannot wait for a fair market price, this is usually the worst value of the property.

Most Sellers Try To Avoid

Most sellers try to avoid being forced to sell at bad liquidation value. An orderly liquidation value means that there is a value that can be obtained by selling assets in an orderly and organized manner. In this case, the seller still needs to liquidate, but it can be liquidated over time, not immediately. 

Fair Market Price

This price is usually better because it assumes that some strategies can be used in the sales process. However, due to the pressure brought by the liquidation to the seller, it is still below the fair market price. As far as the company is concerned, if the liquidation value exceeds the stock price, it indicates that the company should liquidate and distribute the proceeds to shareholders. 

The Company Can Be Forced

The company can be forced to go into liquidation because the company’s primary responsibility is to be accountable to shareholders. Rarely, pricing discrepancies are caused by valuation errors. Therefore, the company always verifies the value before taking liquidation measures.

Bankruptcy Protection

The company can also apply for bankruptcy protection in order to have the opportunity to reverse the company’s value estimation before closing and liquidation. Liquidation value can be challenging, especially for unique assets. Some assets are inherently illiquid, so if they need to be liquidated, they may depreciate significantly because there is not enough time to negotiate better pricing. 

Especially Important For Listed Companies

Other assets are very unusual and it is difficult to determine their selling price liquidation events. An accounting team may be involved in the valuation process in order to ensure the most accurate and fair valuation. This is especially important for listed companies, because under-valuation may harm the interests of shareholders.

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What is Shadow Stock?

The term “shadow stock” has several different uses in the financial world. It can refer to publicly traded stocks. That increase in value when newly listed stocks in similar industries begin to rise, or it can refer to stocks called “virtual stock plans”. In a virtual stock plan, people get paid based on stock increases without actually receiving the value of the company’s shares. 

Shadow stocks are publicly traded stocks that increase in value when newly listed stocks in similar industries begin to trend upward.

In the first sense, a typical example of shadow stocks might be the stocks of a car company that has been traded on the market and has a history. When a new car company goes public.

The stock of the first car company becomes a shadow stock. After a new company is listed, there will often be high trading volumes, which will push its value up, while the value of shadow stocks will often increase accordingly, and eventually, the market and value will stabilize. 

Company Shadow Stock

Giving employees a company’s stock, whether it is fake, is an incentive to provide them with the motivation to help the company succeed. In the sense of a virtual stock plan, shadow stock is a somewhat complicated concept. 

Virtual Stocks

In such a plan, employees are given a certain amount of “virtual stocks” which are not real stocks, and employees do not have stocks in the company. When the value of the company’s stock rises, employees are paid based on the number of shadow stocks they receive.

 Company Stock Fake

In other words, it is as if the company has stocks that are generating returns to employees. A company’s stock, whether fake or fake, is used to motivate them and give them the motivation to help the company succeed. Do something that can increase the value of the stock, so that the salary increase is in the best interests of the employee. In the case of phantom stocks, companies can use this technology.

If they are not publicly traded so that they can provide performance-based compensation without losing stock, and public companies can also provide employees with shadow stocks. Usually, the cash payment that employees are entitled to receive from the shadow stock plan is delayed. 

Long-Term Employment

This is to encourage the long-term employment of employees. Employees may not get the shares immediately, and the number of virtual shares provided will increase over time. 

Payments may not start in a few years, which gives employees a reason to stay in the company so they can receive cash dividends. For tax purposes, the money from the virtual stock plan is treated as earned income.

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