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What is Liquidation Value? Description
Liquidation literally means: turning the assets of a company into readily available cash.
The liquidation value of an asset or company is: the estimated amount of money that it could be sold for quickly. Such as if it were to go bankrupt. In a normal growing profitable industry, a company's liquidation value is usually much less than the current share price. In a dying industry, the liquidation value may exceed the current share price. This usually means that the company should end its business.
Two types of Liquidation Value
There are actually two types of liquidation value, depending on the time available for the liquidation process:
Depending on the enterprise and the nature of its assets, the difference between the two values can be substantial.
This methodology should only be used if liquidation is likely at the end of the forecast period.
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