This liquidation value template helps you compute the liquidation value given a company’s total liabilities and assets in auction value.
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Liquidation value is an estimation of the final value, which will be received by the holder of financial instruments when an asset is sold, typically under a rapid sale process. A business is generally liquidated as part of a bankruptcy process and tangible assets are sold quickly, often for pennies on the dollar, for an extremely low percentage of their original cost.
The calculation of liquidation value is used in financial instrument valuation to simulate the worst-case scenario when a company or business goes bankrupt. It is also used when a healthy company considers undergoing a merger, putting itself up for sale, or applying for credit from its investors or debtor.
Liquidation value can be calculated by removing the value of all assets and liabilities of a company from its financial report. The subtraction of liabilities from assets will give investors the liquidation value.
When working with liquidation value calculations, an investor should exclude intangible assets, such as goodwill, brand recognition, and intellectual properties.
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