What is Liquidation Value?

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.

And Read About: What Is The Bidding War?

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