What is liquidation value?
It's the estimated value of an asset if it had to be sold quickly. When a company is going out of business, the liquidation value is the predicted total worth of all the physical assets – like cash, property, equipment or goods that the company owns and would be able to sell or liquidate to pay its debts or other liabilities.
Where have you heard about liquidation value?
You may have heard about liquidation value in the news when it announces a company is going bankrupt. For example: the UK department store chain BHS, which made the news repeatedly after going into administration in 2016. In this case, administrators were forced to liquidate the company's assets to raise funds to try and pay off the company's creditors after they were unable to find anyone to buy the failing company.
What you need to know about liquidation value.
The liquidation value of an asset is usually lower than its book value, which is the price that the company paid for the asset less any depreciation. This is because these assets are usually sold at a loss because they have to be sold quickly. It's a lot like a closing down sale in a high street shop – you can find some great deals because 'everything must go'.
A company's liquidation value is calculated by subtracting any debts or liabilities from the estimated total value of all its physical assets. Intangible assets like intellectual property or brand recognition are not taken into account.
Find out more about liquidation value.
Business assets can be valued in 4 ways. Find out more about market value, book value, and salvage value.