CandleFocus Glossary Editor
Going-concern value is a key concept in corporate finance and accounting that refers to the an estimated value of a company as it is currently operating, rather than the value it may receive if all assets were liquidated and all operations ceased. When a business is purchased or sold, one of the primary considerations is its going-concern value. Both buyers and sellers will often disagree on this figure, and achieving a satisfied outcome when purchasing a business largely depends on selecting a reasonable going-concern value.
The going-concern value of a company is determined by a variety of factors. Key among these is the profits that the business generates, its profitability and probabilities, and its potential for future growth. Factors such as brand association, customer relations, and beneficial contracts with suppliers are also key to the establishment of a company's going-concern value. The going-concern value of a business can also be increased, in some cases, through the implementation of cost-cutting measures and strategic investments in production capacity.
The notion of goodwill should also be discussed in any conversation regarding going-concern value. Goodwill is the difference between the going-concern value of a business and its liquidation value in the event of a sale. This value is primarily based on intangible assets associated with the business that may provide strategic competitive advantages to a potential buyer. Such assets often relate to customer relations and brand recognition.
Going-concern value is typically much higher than the liquidation value of a company because, in the case of a sale, the business is able to continue to produce profits and benefit from the effort of those currently associated with the business. Buyers will be more willing to pay higher prices for a going-concern business because it brings with it potential for future growth and profits over and above any tangible assets.
Appraising a company's going-concern value can be a difficult assessment, but it is a critical consideration for potential buyers and sellers when engaging in business deals. By accurately assessing this figure, it is possible for buyers and sellers to enter into arrangements that will benefit both sides and unlock a reasonable rate of return to the investor.
The going-concern value of a company is determined by a variety of factors. Key among these is the profits that the business generates, its profitability and probabilities, and its potential for future growth. Factors such as brand association, customer relations, and beneficial contracts with suppliers are also key to the establishment of a company's going-concern value. The going-concern value of a business can also be increased, in some cases, through the implementation of cost-cutting measures and strategic investments in production capacity.
The notion of goodwill should also be discussed in any conversation regarding going-concern value. Goodwill is the difference between the going-concern value of a business and its liquidation value in the event of a sale. This value is primarily based on intangible assets associated with the business that may provide strategic competitive advantages to a potential buyer. Such assets often relate to customer relations and brand recognition.
Going-concern value is typically much higher than the liquidation value of a company because, in the case of a sale, the business is able to continue to produce profits and benefit from the effort of those currently associated with the business. Buyers will be more willing to pay higher prices for a going-concern business because it brings with it potential for future growth and profits over and above any tangible assets.
Appraising a company's going-concern value can be a difficult assessment, but it is a critical consideration for potential buyers and sellers when engaging in business deals. By accurately assessing this figure, it is possible for buyers and sellers to enter into arrangements that will benefit both sides and unlock a reasonable rate of return to the investor.