Definition
Liquidation value estimates what shareholders would receive if a company ceased operations, sold all assets, and paid off liabilities. It's usually below book value since distressed sales fetch lower prices. Net-net investing (buying below net current assets) targets stocks trading below liquidation value as a margin of safety.
Formula
Liquidation Value = Total Assets (at distressed prices) - Total Liabilities
Example
A company has $100M in assets that might sell for $70M in liquidation. After $50M in liabilities, liquidation value is $20M.
FAQ
What is Liquidation Value?
The estimated value if a company sold all assets and paid all debts.
How do you calculate Liquidation Value?
A common formula for Liquidation Value is: Liquidation Value = Total Assets (at distressed prices) - Total Liabilities
Why is Liquidation Value important?
Liquidation Value helps investors evaluate valuation and make more informed decisions.