ALERT

Hire an M&A Professional to Sell Your Business

Liquidation Approach

Definition - What does Liquidation Approach mean?

The liquidation approach is one of the primary business valuation methods available. It is used when the company is determined to no longer be a going concern and liquidating the assets would yield a higher value than the present value of its future earnings and cash flow potential. The final after-tax proceeds available from a liquidation approach requires that all assets and liabilities in a balance sheet be assessed. The net realizable value of the assets minus their disposition costs must first be estimated.

Divestopedia explains Liquidation Approach

The liquidation approach is primarily about time. If the business is in default of any of its financial obligations, the bankers pull the trigger on a forced liquidation. In this case, there is very little time, so you have to assume an immediate shutdown of operations and sale of the assets. A more likely situation may be that the business is not in duress and simply fetches a better price via liquidation rather than a future income or free cash flow based method, and then we are dealing with an orderly liquidation. In this case, the business has time to maximize the proceeds for its assets via liquidation. More importantly, the business can still generate income while its orderly liquidation is occurring, and this income also needs to be taken into consideration when estimating value. An orderly liquidation is definitely the more advantageous business valuation method if the business is not a going concern.

Connect with us

Divestopedia on Linkedin
Divestopedia on Linkedin
Tweat cdn.divestopedia.com
"Divestopedia" on Twitter


'@Divestopedia'
Sign up for Divestopedia's Free Newsletter!

Email Newsletter

Join thousands of others with our weekly newsletter

Resources

  • Equicapita: Equicapita
    Equicapita's model is to acquire established, private small and medium sized enterprises (“SMEs”) located primarily in Western Canada.
  • Evolution Capital: Evolution Capital
    Leaders in growing small business.