Liquidation Value
Candlefocus EditorLiquidation is an orderly, legally sanctioned closure of a business that has become financially unviable or been unable to pay its debts. When a company is liquidated, all its assets are sold off in a timely and organized fashion and the proceeds are distributed among creditors. Any debt the company may owe can result in the legal liquidation of its assets. Any remaining assets after paying creditors are given back to shareholders.
It is important for companies to properly assess liquidation value to determine the solvency of a business. The liquidation value of a company should be greater than the current liabilities it carries. This ensures that its liquidation can be used to pay all of its debts. A company's liquidation value can be determined through an asset assessment to determine the liquidation net worth the company holds if it sells all its assets. This process is important when assessing the risk of a company and helps in understanding what financial return can be reaped if a company goes out of business.
In conclusion, a company’s liquidation value is the total worth of its physical assets after accounting for liabilities when the company is unable to remain solvent. It is significantly lower than the firm’s book value and is considered to be the last resort for providing cash to creditors and shareholders in closing a business. Knowing the exact liquidation value of a company is vitally important for companies and potential investors in determining the true financial worth and volatility of a company.